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a bill in equity for an accounting and to recover a balance of the proceeds above the debt and expenses.'
§ 650. The pledgor may collect the surplus due him by suit at law. But trover will not lie for surplus proceeds of a sale made in pursuance of the terms of sale agreed upon by the parties. Assumpsit is the proper form of action. An action for money had and received will not lie by a pledgor against his pledgee, until a demand has been made upon the pledgee for the surplus proceeds, under an agreement that the latter shall collect the collateral security as it becomes due and apply the proceeds to the payment of the debt.
1 Tateum v. Rose, 150 Mass. 440, 29 N. E. Rep. 230.
In the Montana case it was said that, "when goods have been intrusted
2 Loomis v. Stave, 72 Ill. 623; Taylor to an agent or factor to sell, no action v. Turner, 87 Ill. 296.
will lie against him for the proceeds until demand. With stronger reason, the doctrine applies where property has been intrusted to a pledgee, with power to sell and apply the proceeds to the payment of debts."
3 Jones on Mortgages, § 1940; Stephens v. Hartley, 2 Mont. 504; Sharp v. Rose, 49 N. Y. St. Rep. 420, 20 N. Y. Supp. 826; Roberts v. Ely, 113 N. Y. 128, 131, 20 N. E. Rep. 606, 22 N. Y. St. Rep. 185, 187.
REMEDIES UPON PLEDGES OF NEGOTIABLE PAPER.
I. Collateral paper can not be enforced by sale except by special power, 651-663.
II. Suit upon collateral paper, 664– 680.
III. Enforcing principal debt,681-686. IV. Negotiable paper taken in payment, 687-691.
V. Diligence in collecting collateral paper, 692-719.
I. Collateral Paper Can Not be Enforced by Sale Except by Special Power.
§ 651. Collateral negotiable paper and other choses in action can not be enforced by sale. A pledgee of commercial paper as collateral security can not, in the absence of a special authority for that purpose, sell it upon the non-payment of the debt, upon notice to the pledgor, either at public auction or private sale; but he is bound to hold and collect the same when it falls due, and apply the money to the payment of the debt secured. The reason for this exception to the general
1 Fletcher v. Dickinson, 7 Allen (Mass.) 23; Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323; Garlick v. James, 12 Johns. (N. Y.) 146, 7 Am. Dec. 294; Nelson v. Wellington, 5 Bosw. (N. Y.) 178; Re Litchfield Bank, 28 Conn. 575; Joliet Iron & Steel Co. v. Scioto Fire Brick Co., 82 Ill. 548, 25 Am. Rep. 341; White v. Phelps, 14 Minn. 27; Union Trust Co. v. Rigdon, 93 Ill. 458, 9 Cent. L. J. 486; Zimpleman v. Veeder, 98 Ill. 613; Cole v. Dalziel, 13 Ill. App. 23; Cleg. horn v. Minnesota Title Ins. & Trust
Co., 57 Minn. 341, 59 N. W. Rep. 320;
rule in relation to the sale of property pledged is, that such paper has no established market value, and it can not be presumed it was the intention of the parties thus to deal with it.
A usage among the bankers of New York to dispose of notes held as collateral, by making sale of them, was held by the court of appeals of New York to be void, because it was in opposition to this rule of law.' The ground of the decision is, that notes, not being usually marketable at their fair value, must generally be sold at a sacrifice, and so injustice would be likely to be done to the debtor, even if the sale were at public auction and with notice.
ENFORCING COLLATERAL PAPER BY SALE.
A special power to sell negotiable paper taken as collateral security upon default in payment of the debt is not exclusive of every other means of rendering the security available. The pledgee has the right to receive payment of such collateral paper and to enforce payment of it by action. Such a right is incident to every pledge of negotiable paper. When, therefore, an express power is given the pledgee to sell such paper upon default, the necessary conclusion is that the power of sale is given, not for the purpose of restricting or curtailing the rights of the pledgee, but for the purpose of enlarging his rights and making the pledge more advantageous to him by giving him a more effectual and speedy means of obtaining money from his security.'
§ 652. This rule may be suspended by agreement of the parties; and such is the effect of a written agreement, that, upon default, the creditor may collect the pledged notes, or may negotiate them for the purpose of liquidating the debt. But the Bosw. (N. Y.) 429, 445; Whitteker v. Charleston Gas Co., 16 W. Va. 717; First Nat. Bank v. Kimberlands, 16 W. Va. 555; Third Nat. Bank v. Harrison, 3 McCrary 316.
Per Woodruff, J., in Nelson v. Wellington, 5 Bosw. (N. Y.) 178.
4 Hunter v. Hamilton, 52 Kan. 195, 34 Pac. Rep. 782; Roberts v. Thompson, 14 Ohio St. 1; Fraker v. Reeve,
1 Wheeler v. Newbould, 16 N. Y. 392, 5 Duer 29; Brown v. Ward, 3 Duer (N. Y.) 660; Atlantic F. & M. Ins. Co. v. Boies, 6 Duer (N. Y.) 583; Moody v. Andrews, 39 Super. Ct. Rep. (N. Y.) 302; affirmed, 64 N. Y. 641; Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323.
2 Nelson v. Wellington, 5 Bosw. (N. Y.) 178; Brookman v. Metcalf, 5
sale in such case must be made in good faith and for a reasonable price, and must be exercised in the usual manner of a sale of a pledge, and as a trust for the debtor's benefit as well as for the creditor's own benefit.' Thus, certain promissory notes were pledged to a trust company as collateral security for a debt of a smaller amount, with authority to sell the same on maturity of the principal debt, "at public or private sale, without advertising the same, or demanding payment, or giving notice." The debt not being paid at maturity, the trust company, without demanding payment of the collateral notes, which had also matured, wrote to the maker of them that these notes would be sold to satisfy the debt, and offering him the first chance to purchase. A few days later the company surrendered the notes to the maker upon his paying the amount of the debt for which they were pledged as security, this amount being much less than the amount of the collateral notes. The question presented was, therefore, whether an arrangement made between the pledgee of past-due negotiable paper and the maker of such paper, whereby he transfers such paper to the maker for less than its face, and for an amount precisely sufficient to pay the principal debt, is a sale within the meaning of the power conferred. It is certain that this could not be done without the aid of the special power; and it is equally certain that such an arrangement was not within the scope of the power given. The supreme court of Illinois,' so deciding, say: "The intention of the parties to the contract is the real point of inquiry. When the pledgor authorized the trust company to sell the securities at public or private sale, what was understood and intended by the parties? Was not an ordinary sale and purchase in their minds,—a contract whereby the seller parted with property and title, and the buyer
36 Wis. 85; Brightman v. Reeves, 21 Tex. 70; Goldsmidt v. First Methodist Church, 25 Minn. 202, 6 Rep. 435; Cole v. Dalziel, 13 Ill. App. 23; Cooper v. Simpson, 41 Minn. 46, 42 N. W. Rep. 601.
' Union Trust Co. v. Rigdon, 93 Ill. 458, 9 Cent. L. J. 486.
458, 9 Cent. L. J. 486; Brightman v. Reeves, 21 Tex. 70; Goldsmidt v. First Methodist Church, 25 Minn. 202, 6 Rep. 435; Sparhawk v. Drexel, 12 N. Bank. R. 450.
'Union Trust Co. v. Rigdon, 93 Ill.
obtained property and the title thereto? Can we suppose they contemplated a transfer whereby the property would be destroyed and the title extinguished? If the pledgor had intended a transaction such as is here involved, would he not have used language such as is used in the books or by the courts, or other apt language, to designate such transaction? Would he not have given authority to compromise or surrender the securities? Is it not a latitudinarian, if not a strained, enforced construction, to call the transaction here a sale? In its ordinary sense and according to the common use of language, as also in the strict and proper acceptation of the word, a sale is not understood as designating a transfer such as this. Again, the power under consideration is in derogation of common-law duties, and wipes out wise and equitable safeguards interposed by that law for the protection of the pledgor, and relieves the pledgee from just duties imposed upon him; and which safeguards and duties are intended to prevent fraud and a breach of the trust imposed." The court furthermore held irrelevant and inadmissible evidence that the trust company made reasonable efforts to sell the notes and failed to find a purchaser, and that the sale and transfer to the maker of the notes was in fact without any collusion or actual fraud, and for the best price that could be obtained for them. An offer to show that the maker of the collateral paper gave other paper to the debtor for no value received, or that he had other claims against the debtor, was also disallowed; inasmuch as this was not an offer to prove that these particular notes were accommodation paper, or that the maker had a legal defense to them. The presumption of law is that the notes were given for a good and valuable consideration, and it is also the presumption that the maker was solvent; and, therefore, the measure of damages in a suit by the debtor against the trust company was the amount due upon the notes, less the amount paid on them.
Where the maker of a promissory note pledged as collateral security for the note certain shares of stock and a life insurance policy, and agreed to maintain on demand ten per cent. margin collateral security during the continuance of the