"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 unsecured debt, on the ground that he is entitled to the benefit of all his securities."1

§ 548a. Where a pledge secures 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. A general payment 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 can not 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. The proceeds of the property 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

1 First Nat. Bank v. Finck, 100 Wis. 446, 453, 76 N. W. Rep. 608, per Wins low, J., citing Small v. Older, 57 Iowa 326, 10 N. W. Rep. 734; Wilson v. Allen, 11 Ore. 154, 2 Pac. Rep. 91; California Nat. Bank v. Ginty, 108 Cal. 148, 41 Pac. Rep. 38; Mathews v. Switzler, 46 Mo. 301. See, also, Wood v. Callaghan, 61 Mich. 402, 28 N. W. Rep. 162; Morrison v. Citizens' Nat. Bank, 65 N. H. 253, 20 Atl. Rep. 300; Northern Nat. Bank v. Lewis, 78 Wis. 475, 47 N. W. Rep. 834.

2 California Nat. Bank v. Ginty, 108 Cal. 148, 41 Pac. Rep. 38; Murdock v. Clarke, 88 Cal. 384, 26 Pac. Rep. 601;

Field v. Holland, 6 Cranch 8; Wood v. Callaghan, 61 Mich. 402, 28 N. W. Rep. 162, 1 Am. St. Rep. 597; Morrison v. Citizens' Nat. Bank, 65 N. H. 253, 20 Atl. Rep. 300, 23 Am. St. Rep. 39.

3 Wilcox v. Fairhaven Bank, 7 Allen (Mass.) 270; Richardson v. Washington Bank, 3 Met. 536; Fall River Nat. Bank v. Slade, 153 Mass. 415, 26 N. E. Rep. 843; Titcomb v. McAllister, 81 Me. 399, 17 Atl. Rep. 315.

Marziou v. Pioche, 8 Cal. 522; Farnsley v. Anderson Foundry & Mach. Works, 90 Ind. 120.

can not 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 is necessarily subject to the lien of the original debt secured by the pledge, and the pledgee can not change the appropriation except with the consent of the debtor.1

The proceeds of collaterals pledged to secure a specific debt can only be applied to the payment of that debt.2

A pledge of bonds to a bank as security for loans to an individual, the agreement specifying that they are collateral security for certain demand notes "and of any and every other indebtedness or liability, due or to become due, which may exist on my part to the bank," can not be retained as security for indebtedness to the bank of a firm of which such depositor was a member, or for payment of a note of a third person indorsed by the depositor."

§ 550a. A creditor holding security pledged by his debtor, and also the debtor's note indorsed by another 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 accommodation indorser which had come into the pledgee's hands can be used for that purpose.*

1 Ware v. Otis, 8 Me. 387.

2 First National Bank v. Finck, 100 Wis. 446, 76 N. W. Rep. 608; Atherton Co. v. Ives, 20 Fed. Rep. 894; First Nat. Bank v. Scott, 123 N. C. 538, 31 S. E. Rep. 819; Walton v. Davis, 114 N. C. 104, 19 S. E. Rep. 159; Stowe v. First Nat. Bank, 1 Ohio C. C. 524; Metz v. Commercial Bank, 45 S. C. 216, 23 S. E. Rep. 13; San Antonio Nat. Bank v. Blocker, 77 Tex. 73, 13 S. W. Rep. 961; James's Appeal, 89 Pa. St. 54; Loew v. Austin, 140 Pa. St. 41, 21 Atl. Rep. 240; Loyd v. Lynchburg Nat. Bank, 86 Va. 690, 11 S. E. Rep. 104; Bacon v. Bacon, 94 Va. 686, 27 S. E. Rep. 576; Wyckoff v. Anthony, 90 N. Y. 442; Duncan v.

Brennan, 83 N. Y. 487; Continental National Bank v. Bell, 125 N. Y. 38, 25 N. E. Rep. 1070; Armstrong v. McLean, 153 N. Y. 490, 47 N. E. Rep. 912, reversing 92 Hun 397; Tenant v. Dudley, 68 Hun (N.Y.) 225, 22 N. Y. Supp. 876; Hughes v. Hunner, 91 Wis. 116, 64 N. W. Rep. 887; Reynes v. Dumont, 130 U. S. 354, 9 S. C. Rep. 486; Haldeman v. German Security Bank, 19 Ky. L. Rep. 1691, 44 S. W. Rep. 383.

3 Fullerton v. Chatham National Bank, 17 Misc. Rep. (N Y.) 529, 40 N. Y. Supp. 874.

4 Goodwin v. Massachusetts Loan & Trust Co., 152 Mass. 189, 25 N. E. Rep. 100.

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 that the thing delivered to the pledgee as security either remains in his possession or has been disposed of for his benefit.1

§ 550b. A pledge of the surplus after satisfying the principal 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 applicable to any other note or claim held by said holder against the maker or makers hereof." It was held that "recourse to collaterals" 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 can not 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 application 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 resort 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 declaration of an intention to sell, wholly unexecuted, can not properly be considered as a resort to them for any cause or purpose, particu

1 Detroit Motor Co. v. Third Nat. Bank, 111 Mich. 407, 69 N. W. Rep.

larly when, by mutual consent of the parties, the proposed sale at the time specified was wholly abandoned, and a different time was specified or agreed on. We think it would be harsh and inequitable to hold 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 characterized or considered as an actual practical recourse or resort to the collaterals, and that a tender before the second time designated for the sale of the collaterals would not be held sufficient to defeat or prevent the exercise of the power of sale.""

§ 551. 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 collateral 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 collection, therefore, of the collateral note, operated as payment of the principal's 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, can not, in the absence of a special agreement, appropriate the proceeds of a sale of the goods to the payment of a debt due to himself by the principal.'

'Winkler v. Magdeburg, 100 Wis. 421, 428, 76 N. W. Rep. 332.

2

Phillips v. Thompson, 2 Johns.

Ch. (N. Y.) 418, 7 Am. Dec. 535.

Geffcken v. Slingerland, 1 Bosw. (N. Y.) 449.

James's Appeal, 89 Pa. St. 54.

§ 551a. Whether the application 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 there is an able opinion of the supreme court of Minnesota, announced in a recent case, holding that such application does not interrupt the statute of limitations, said: "The principle upon which part payment of a debt will take a case out of the statute 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 can not 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 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 inferred. 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,

Wood Lim. Act, § 101.