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§ 643. In case of a pledge of a title deed, it seems that there can be no valid sale except under a decree of a court of equity; for such a pledge is really an equitable mortgage, and the remedy for a default is in equity. A sale of the deed, which is really all that the pledgee can effect by his own act, is an imperfect remedy, for it does not give the purchaser possession of the land; and moreover the title may thus be separated from the possession, and great damage may result from a sacrifice of the property at an inadequate price. In a case where a lease was pledged to a solicitor by his client, the latter becoming bankrupt, the former sold the lease. In a suit against him by the bankrupt's assignees, it was held that they were entitled to recover the full amount the solicitor received for the lease, without deducting the amount of the claim secured.' Chief Justice Tindal, delivering judgment, said: "Now that lease at the time of such sale was in the possession of the defendant, as a pledge or security for the payment of his demand against the bankrupt, being either in his possession as solicitor, under a claim upon it for his lien, which the law gives him, or having been expressly deposited with him as a security for his demand. In either case the right and power of the defendant over the lease was precisely the same; he had a right to retain the lease in his possession until his demand was paid, and so far by means of the possession of the lease to enforce payment of his demand, but he had that right only; he had no right to sell the lease and to pay himself his demand out of the proceeds. So long as the lease remained in his possession, neither the bankrupt nor his assignee could retake it without either payment of the demand, or a tender and refusal, which is equivalent to payment. But if instead of keeping the thing pledged he sells it or enables any other person to sell it, by concurring in the sale, he is guilty of a direct conversion and makes himself liable for the value of the lease in an action of trover."
§ 644. A factor may enforce his lien by an equitable suit. He is generally regarded as invested with the rights of a 'Clark v. Gilbert, 2 Bing. N. C. 343, 356.
pledgee. In such suit the factor may enforce his lien, not merely for his commissions and advances upon particular goods consigned, but for the general balance of his account; and he is entitled therein to judgment for any deficiency that may exist after the sale of the consigned goods.2
§ 645. A provision for a summary sale of collateral security upon default does not exclude a sale under judicial proceedings. Thus, a stipulation in a pledge of railroad bonds that in case of default the pledgee shall have the right to sell them, at public auction, in the city of Chicago, upon giving a specified notice, simply confers a right of sale in a prescribed manner, without expressly or impliedly excluding other lawful proceedings for the attainment of the same object. Neither does such a provision bind the pledgee to sell the bonds in the city. of Chicago; but he may commence proceedings in equity to enforce the security in any state whose courts have jurisdiction of the parties, and the bonds may be sold wherever the decree shall provide.3
§ 646. A foreclosure and sale of a pledge may be decreed on the debtor's default in payment of interest, when interest is in terms or by necessary implication a part of the debt secured. Thus, where stock in a corporation has been pledged for the "redemption of certificates of debt," and these certificates bind the debtor for the payment of "the sum therein mentioned and the interest thereon," the stock is bound for the payment of the interest itself, and a foreclosure may be decreed on default in payment of any installment of interest.*
In an action to foreclose a mortgage of real property to secure a debt for which shares of stock in a water company were also pledged to a trustee, the shares of stock can not properly
1 Edw. on Bailm., 213, 220.
The same rule applies as regards
2 Whitman v. Horton, 46 N. Y. Su- powers of sale in mortgages. Jones perior Ct. 531. on Mortgages, § 1773; Jones on Chattel Mortgages, § 778.
3 Coffin v. Chicago Northern Pacific Construction Co., 67 Barb. (N. Y.) 337, 4 Hun 625.
be ordered to be sold under a judgment of foreclosure entered upon default in case such sale is not specifically prayed for in the complaint.' A sale of the shares on a void judgment for a deficiency in the foreclosure suit confers no title upon the purchaser, and the pledgor may redeem by tendering the residue of the mortgage debt."
In an action to foreclose a mortgage and a pledge of stock securing the same debt, the judgment should provide not only for a foreclosure of the mortgage, but also for a foreclosure of the pledge."
§ 646a. If a receiver of the property of a corporation or partnership which has made a pledge has been appointed, the pledgee, in an action to foreclose his pledge, must make the receiver a party to the action in order to have a valid decree.*
In a suit in equity to dissolve a partnership, and for the appointment of a receiver, a creditor of the firm holding collateral security for his debt, consisting of a promissory note containing a power of sale, may intervene by a petition, asking that the security may be sold and the proceeds applied to the payment of his debt, and that he may be admitted to prove his claim for the residue, and an order for the sale of the security is within the authority of the court."
§ 646b. A pledge to secure an award may be foreclosed in an action in the nature of a proceeding in rem. When a party to a submission agreement for arbitration, in which he has covenanted to pay the award, revokes the submission and so prevents an award, this is itself a breach of the covenant; and if, under the terms of the agreement, a pledge has been deposited for him to secure payment of the award, the condition of the pledge is broken by his rendering its performance impossible,
First Nat. Bank v. Dusy, 110 Cal. 69, 42 Pac. Rep. 476.
Denny v. Cole (Wash.), 61 Pac.
1 Security Loan & Trust Co. v. Boston & South Riverside Fruit Co., 126 Cal. 418, 58 Pac. Rep. 941.
Latta V. Tutton, 122 Cal. 279, 54 Rep. 38. Pac. Rep. 844.
5 White v. White, 169 Mass. 52, 47 N. E. Rep. 499.
and the pledge may be foreclosed to the extent of the damages allowed by the statute on revocation of a submission.' "The pledge secured the award, and the party revoking the submission prevented an award, and thereby forfeited the pledge and made it, under the statute, liable for the expenses incurred in trying to get an award the same as it would have been liable for an award if made. Non-payment of an award would have violated the condition of the pledge no more than a revocation of the submission violated it, and the pledge is liable for all the direct and natural consequences of such violation except as limited by the statute."
§ 646c. Upon the insolvency of a corporation a creditor who holds as collateral security some of its bonds secured by mortgage must enforce his security by a bill in equity to compel a sale under the mortgage and the payment of a due proportion of the proceeds to him. The creditor in such case has no such title under the mortgage that a court of insolvency can order it to be sold. Other holders of the bonds are interested, and the rights of the parties must be enforced through the broader jurisdiction of a court of equity. The decree of sale in such case should provide that the sale be made in accordance with the terms of a power of sale contained in the mortgage."
§ 647. There can be no decree of strict foreclosure of a pledge. The doctrine that an equitable mortgagee of title deeds is entitled to foreclosure does not apply. "The principle upon which the court acts in the latter case is, that in a regular legal mortgage there has been an actual conveyance of the legal ownership, and then the court has interfered to prevent that from having its full effect, and when the ground of interference is gone, by the non-payment of the debt, the court simply re
1 Union Ins. Co. v. Central T. Co., 157 N. Y. 633, 52 N. E. Rep. 671, affirming 87 Hun 140, 32 N. Y. Supp. 838, 33 N. Y. Supp. 1135.
2 Merchants' Nat. Bank v. Greene, 150 Mass. 317, 23 N. E. Rep. 103. And
see Franklin County Nat. Bank v. First Nat. Bank, 138 Mass. 515; White v. White, 169 Mass. 52, 47 N. E. Rep.
3 Carter v. Wake, 4 Ch. D. 605.
moves the stop it has itself put on. Then, when there is a deposit of title deeds, the court treats that as an agreement to execute a legal mortgage, and therefore as carrying with it all the remedies incident to such a mortgage. None of this reasoning applies to a pledge of chattels; the pledgee never had the absolute ownership at law, and his equitable rights can not exceed his legal title.""
§ 648. The court may authorize the pledgee to bid when a pledge is sold under decree in equity, in which case he is not allowed to conduct the sale.2
VII. Surplus Proceeds of Sale.
§ 649. Whenever the purpose of the pledge is satisfied the pledgor's right to the surplus becomes absolute. Thus, where a life insurance policy was pledged, and, after the death of the insured, the insurance company settled with the pledgee and agreed to pay the surplus to the person lawfully entitled to it, it was held the executor of the insured had a purely legal claim for the surplus, and that the company was liable to pay it in full without deduction for expenses incurred by the company in resisting unfounded claims upon it sought to be established by creditors of the deceased through a garnishment process. If the pledgor has assigned his interest in the pledge before the sale, the pledgee should pay the surplus to such assignee.
A creditor collecting or enforcing collateral security, such as negotiable paper, a policy of insurance or a chose in action of any kind, is accountable to his debtor for any surplus above the amount of the debt secured; and the debtor may maintain
1 Carter v. Wake, 4 Ch. D. 605, per 3 N. Y. 525; Jones on Chattel MortJessell, M. R. gages, $712; Jones on Mortgages, §§ 1927-1940.
* Earle v. New York Life Ins. Co., 7 Daly (N. Y.) 303.
Foster v. Berg, 104 Pa. St. 324.
2 Carter v. Wake, 4 Ch. D. 605.
3 Whittaker v. Amwell Nat. Bank, 52 N. J. Eq. 400, 29 Atl. Rep. 203; Earle v. New York Life Ins. Co., 7 Daly (N. Y.) 303; Selden v. Vermilya,