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§ 684. Judgment upon the collateral does not satisfy the principal debt. Thus a recovery of judgment by the creditor against the maker of the collateral note, and against the principal debtor as indorser of that note, does not operate as a satisfaction of the original debt, nor constitute a bar to a suit upon that debt;' neither would the creditor's assignment of such judgment to the debtor, upon recovering part payment of the debt, operate as a satisfaction of the original debt beyond the amount so paid on account of it. Judgment may be recovered both in the suit upon the collateral and upon the principal obligation, and either judgment may be collected; although, in case the judgment upon the collateral debt exceed the other, and it be collected in full, the surplus is of course held for the benefit of the debtor. Neither does the recovery of judgment upon the principal debt, and the arresting of the body of the debtor upon execution, impair the creditor's right to hold and enforce the collateral security.*

§ 685. A creditor holding collaterals is not bound first to apply them before enforcing his remedy against the debtor." Even the fact that the debtor is the maker of an accommodation note does not change this rule.

But as an exception to this rule equity may require the creditor to apply collateral security before proceeding to enforce collection from the estate of a deceased debtor, when such collateral is ample, and the personal estate in the hands of his administrator is insufficient to pay the claim, and resort to the real estate would be necessary."

In an action by a pledgee upon the debt secured by the pledge he is not required to account for non-negotiable securi

1 Burnheimer v. Hart, 27 Iowa 19, 1 Am. Rep. 209, 99 Am. Dec. 641; Hawks v. Hinchcliff, 17 Barb. (N. Y.) 492.

"Burnheimer v. Hart, 27 Iowa 19. Plant's Manufacturing Co. v. Falvey, 20 Wis. 200.

Smith v. Strout, 63 Me. 205.

5 Lewis v. United States, 92 U. S. 618; Ambler v. Ames, 1 D. C. App. Cas. 191.

Lord v. Ocean Bank, 20 Pa. St. 384, 59 Am. Dec. 728. See Comstock v. Smith, 23 Me. 202.

7 Alexander v. Alexander, 64 Ind. 541.

ties pledged to him by defendant, in the absence of any allegation or proof that he has lost or misappropriated them.'

If a holder of collateral securities negligently suffers them to be lost, he is chargeable therefor in a plea of set-off to the principal debt.'

§ 686. A surety upon the principal note can not require the creditor to proceed upon the collateral security before bringing suit against the surety. The latter may, at any time after the maturity of the debt, discharge it and take the security.

But the circumstances may be such that the creditor will be bound to apply the proceeds of securities pledged by the principal debtor before resorting to other securities furnished by a surety.*

The indorsee of a negotiable note is not bound in the first place to resort to securities furnished by the payee, so as to enable the principal debtor to avail himself of a right of set-off against the payee which did not exist at the time of the transfer of the note.5

IV. Negotiable Paper Taken in Payment.

§ 687. A debtor claiming that his creditor has agreed to accept collaterals held by him in satisfaction of his debt must establish the defense by positive evidence. The mere acceptance, by a creditor, of a negotiable note of a third person makes it but collateral security; and nothing short of an actual agreement to receive it in payment, or some evidence from which a positive inference of discharge can be made, will

1 Marberry v. Farmers' & Mechanics' Nat. Bank, 6 Tex. Civ. App. 607, 26 S. W. Rep. 215.

'Culver v. Wilkinson, 145 U. S. 205, 12 S. C. Rep. 832; Marberry v. Farmers' & Mechanics' Nat. Bank, 6 Tex. Civ. App. 607, 26 S. W. Rep. 215; Douglass v. Mundine, 57 Tex. 344, 347; Donnell v. Wyckoff, 49 N. J. L. 48, 7 Atl.

Rep. 672; First Nat. Bank v. O'Connell, 84 Iowa 377, 51 N. W. Rep. 162.

3 Brick v. Freehold Nat. Banking Co., 37 N. J. L. 307.

4 Jenkins v. Gunnison, 50 Wis. 388, 7 N. W. Rep. 256, 423.

5 Munger v. Albany City Nat. Bank, 85 N. Y. 580.

suffice to produce this effect.' The difficulty in the application of this rule has generally been found to be in determining what evidence is sufficient to establish the fact of the agreement, or to justify submitting the evidence to the jury as raising a question of fact for their determination.' When there is a conflict of evidence upon the question whether a note of a third person was received as payment, or merely as collateral, the question is one for the jury. Such an agreement, when alleged to be contemporaneous with the creation of the debt, and is not mentioned in a written assignment of the collaterals, which are less in amount than the debt, will be considered as intrinsically improbable. The fact that a pledgee of corporate stock has voted upon it at a stockholders' meeting does not show that he has agreed to accept it in payment of the debt, nor does it constitute a conversion of the stock." After a creditor has obtained judgment upon the collateral note, and transferred this to his debtor, and the latter has received the benefit of it, he is estopped from setting up the defense that the collateral note was taken by the creditor towards payment of the debt.

The taking of a note of a third person for an existing debt is deemed a conditional and not an absolute payment of the original debt, unless otherwise agreed between the parties."

§ 688. There is a distinction, however, between a note of a third person taken for an antecedent debt, and one accepted

1 Wilhelm v. Schmidt, 84 Ill. 183; Prettyman v. Barnard, 37 Ill. 105; Noel v. Murray, 13 N. Y. 167; and see Burlington Gas-Light Co. v. Greene, 22 Iowa 508. In Youngs v. Stahelin, 34 N. Y. 258, there is a dictum by Smith, J., that the presumption is that a creditor taking from his debtor the obligation of a third person takes it in payment and not as security; although this presumption may be rebutted by evidence to the contrary. But this is neither law nor sense.

2 Wright v. Crockery Ware Co., 1 N. H. 281, 8 Am. Dec. 68; Whitney v. Goin, 20 N. H. 354; Noel v. Murray, 13 N. Y. 167, per Marvin, J.

3 Atlantic F. & M. Ins. Co. v. Boies, 6 Duer (N. Y.) 583.

4 Brown v. Hiatt, 1 Dill. 372; Kiser v. Ruddick, 8 Blackf. (Ind.) 382; Kelsey v. Rosborough, 2 Rich. (S. C.) 241.

5 Heath v. Silverthorn Lead Mining & Smelting Co., 39 Wis. 146.

Holmes v. Lykins, 50 Mo. 399. 7 Kephart v. Butcher, 17 Iowa 240;

for property sold; for while a note taken for an antecedent debt is regarded only as a conditional payment, and in effect operates as collateral security, a note taken for goods sold is a payment.' In Whitbeck v. Van Ness, where a note of a third person was taken upon the sale of a horse, and the note not being paid at maturity, the vendor brought suit against the purchaser for the price, the court said: "The intrinsic circumstances of this case plainly show that the plaintiff considered himself as taking the note at his own risk. It was made payable to the plaintiff himself, and the defendant, by not indorsing it, or guaranteeing the payment, clearly declined pledging his own responsibility. The offer was made of the note for the horse; the plaintiff took time to consider whether it was advisable to take the note, and, after deliberation, and we must presume, too, after inquiry, agreed to sell the horse for the note." In like manner, in Breed v. Cook, it was consid

Muldon v. Whitlock, 1 Cow.(N. Y.) 290, 306, 13 Am. Dec. 533; Whitbeck v. Van Ness, 11 Johns. (N. Y.) 408, 6 Am. Dec. 383; Johnson v. Weed, 9 Johns. (N. Y.) 310, 6 Am. Dec. 279; Glenn v. Smith, 2 G. & J. (Md.) 493; McConnell v. Stettinius, 2 Gilm. (Ill.) 707; Shipman v. Cook, 16 N. J. Eq. 251; Tobey v. Barber, 5 Johns. (N. Y.) 68, 4 Am. Dec. 326; Butler v. Haight, 8 Wend. 535; Vail v. Foster, 4 N. Y. 312; Partee v. Bedford, 51 Miss. 84; Taylor v. Conner, 41 Miss. 722, 97 Am. Dec. 419; Guion v. Doherty, 43 Miss. 538; Lear v. Friedlander, 45 Miss. 559.

1 1 Emly v. Lye, 15 East 7, 12; Clark v. Mundal, 1 Salk. 124, 12 Mod. 203; Ward v. Evans, 2 Ld. Raym. 928; Owenson v. Morse, 7 T. R. 60; Whitbeck v. Van Ness, 11 Johns. (N. Y.) 413, 6 Am. Dec. 383; Breed v. Cook, 15 Johns. (N. Y.) 241; Noel v. Murray, 1 Duer (N. Y.) 385; Ferdon v. Jones, 2 E. D. Smith (N. Y.) 106; Rew v. Barber, 3 Cow. (N. Y.) 272; Wise v. Chase, 44 N. Y. 337. In Clark v.

Mundal, 1 Salk. 124, 12 Mod. 203,
Lord Holt said, that if A. sells goods
to B., and B. is to give a bill in satis-
faction, B. is discharged, though the
bill is never paid, for the bill is pay-
ment; but otherwise a bill should
never discharge a precedent debt or
contract; but if part be received, it
shall be only a discharge of the old
debt for so much. Bayard v. Shunk,
1 W. & S. (Pa.) 92, 37 Am. Dec. 441;
Bicknell v. Waterman, 5 R. I. 43.
211 Johns. (N. Y.) 409, 413, 6 Am.
Dec. 383.

15 Johns. (N. Y.) 241; and see Bank of England v. Newman, 1 Ld. Raym. 442, 12 Mod. 241, per Lord Holt, C. J. "If a man has a bill payable to him or bearer, and he delivers it over for money received, without indorsement of it, this is a plain sale of the bill, and he who sells it does not become a new security." And see Union Bank v. Smiser, 1 Sneed (Tenn.) 501; Long v. Spruill, 7 Jones (N. C.) L. 96.

ered that the purchaser's declaration, that he would not indorse the note, authorized the presumption that the note was taken in absolute payment. In accepting such a note without the purchaser's indorsement, the seller is considered as parting with his goods for the note, and as relying exclusively upon the credit and solvency of the parties thereto, and as waiving recourse upon the buyer, if it should turn out not to be good. In the cases mentioned it would seem that it was a matter of agreement, either express or to be implied from circumstances, that the transfer of the note at the time of the purchase of property should operate as payment absolutely. Of course, it would be competent for the parties to agree that such a transfer should operate only as collateral security, and such an agreement might also be inferred from circumstances attending the transaction.

§ 689. Of course the parties may, by express agreement,* make a third person's note payment of an existing demand. Thus, where a debtor offered to deliver to his creditor such a note, or to pay him the money at an early date, and the creditor chose the note, and thereupon received it and credited it to the debtor, the note was held to have been received in payment.' When, upon a sale of goods, the note of a third person is expressly received in payment, the purchaser's indorsement of the note does not change the legal effect of the transfer as payment. The vendor can not in such case maintain an action for the price of the goods, although he produces the note and offers to surrender it upon the trial. In such case, the only engagement made by the purchaser is that of a commercial indorser. In strictness, he does not agree to pay for the goods, but agrees that, if the note be not paid upon. due demand thereof at maturity, he will, on receiving due notice, pay the same. "The vendor may sell and does sell upon any terms that please him, and his contract of sale is a single contract. If by that contract he gives his goods for

1 St. John v. Purdy, 1 Sandf. (N.Y.) 9; and see Mosley v. Floyd, 31 Ga.

564; Union Bank v. Smiser, 1 Sneed (Tenn.) 501.

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