not of itself establish a loss by reason of the exchange, although the substituted collateral turns out to be worthless. There must be evidence that the securities given up were not also worthless. When the pledge has been made on no other terms than those defined by law, the debtor can not afterwards add to or change the conditions of the pledge, so as to turn the collateral note into cash, by a mere notice to the creditor that if he exchanges it for another note he must take the collateral as cash. The pledgor can give such notices and warnings as may raise proof of negligence on the part of the creditor if he disregards them. But this amounts to nothing, unless injury and loss be shown to have resulted from negligence or mismanagement on his part. No doubt the pledgee takes upon himself an increased responsibility by making an exchange of security; but it is only the omission of proper care and diligence on his part that will make him liable to account for collateral security which has proved worthless.'

But the creditor is liable for any loss occasioned by an exchange of the collateral obligation without the consent of the debtor, or by the conversion of the collateral into a less security, · by discharging any of the parties originally liable upon the collateral. If, for instance, he takes in exchange for a note signed by two persons a new note signed by only one of them, he renders himself accountable to the principal debtor for the original collateral note.3

If a pledgee holding a promissory note as collateral security. takes in place of it another note as collateral security for the same principal debt, and receives full payment of the debt from this latter note, he can not, subsequently, without the consent of the pledgor, or of his assignee, return the latter collateral note and take back the original collateral note, so as to reinstate the liability of the pledgor, or deprive him or his

1 Girard Fire & Marine Ins. Co. v. Marr, 46 Pa. St. 504, per Thompson, J.; Griggs v. Day, 21 App. Div. 442, 47 N. Y. Supp. 609; McKusick v. O'Gorman (Minn.), 69 N. W. Rep. 317.

Girard Fire & Marine Ins. Co. v. Marr, 46 Pa. St. 504; Muirhead v. Kirkpatrick, 21 Pa. St. 237.

3 Muirhead v. Kirkpatrick, 21 Pa. St. 237.

assignee of the right to the surplus of the collateral note which was paid,'

There is authority, however, to the effect that if a pledgee exchanges a collateral note for another note, payable to his order, he is bound to account to the pledgor as if the original note had been paid in full, without inquiry whether the exchange had resulted in a loss, or whether the original collateral note was valuable or worthless.2

§ 719. If the creditor extend the time of payment of the collateral note, he thereby makes it his own. Such is the effect of his receiving payment of part of the collateral note at its maturity, and taking a new note payable at a future day for the part not paid. Even where a creditor does not make a definite agreement for extension, he may, by so dealing with the collateral obligation as to delay the collection of it, make it his own. Thus, if a draft be received by a creditor from his debtor to collect, and to place to the account of the latter when paid, and the creditor presents the draft to the drawee and re ceives his check for it, but delays for one day to present the check, during which time the drawee fails, the principal debtor is discharged from all liability; for the creditor in such case undertakes to do all that the law requires to be done to obtain payment of the draft, and having failed in that duty to the prejudice of the debtor, he must suffer the consequences."

As regards the maker of the collateral note, an extension of the time of payment by taking a new note payable at a future day, in place of the original note, may have the effect of making a new and valuable consideration for the new note, although the original note was without consideration and sub

1 Post v. Union Nat. Bank, 159 Ill. 466; Southwick v. Sax, 9 Wend. (N. 421, 42 N. E. Rep. 976. Y.) 122; Gage v. Punchard, 6 Daly (N. Y.) 229; Depuy v. Clark, 12 Ind. 427; Haas v. Bank of Commerce, 41

2 Haas v. Bank of Commerce, 41 Neb. 754, 60 N. W. Rep. 85.

3 Freeman v. Benedict, 37 Conn. Neb. 754, 60 N. W. Rep. 85.

559.

5 Smith v. Miller, 43 N. Y. 171, 174,

Nexsen v. Lyell, 5 Hill (N. Y.) 3 Am. Rep. 690.

ject to defense in the hands of the creditor. In such case, the new note being founded on a valuable consideration, independent of that on which the original note was founded, the failure of the consideration of the former is not a defense by the maker in a suit against him on the last note.'

1 Muirhead v. Kirkpatrick, 21 Pa. St. 237.

§ 720. As has already been noticed, a holder of collateral securities, upon the debtor's default, has several remedies. He may enforce payment of the principal debt; he may sell the collateral securities under any power of sale the debtor may have given, or, in the absence of such power, he may sell them upon giving reasonable notice to the debtor; or he may, by bill in equity, have a judicial sale.' The latter course is rendered necessary where stock has been pledged by delivery of a certificate, without any transfer, or power to make a transfer. A court of equity will look upon a transfer as made which ought to be made, and will decree a sale and application of the proceeds to the payment of the loan. There is also jurisdiction in equity in case an account between the parties must be stated, in order to determine the amount of the debt secured, or even in case there is such uncertainty as to the time of payment that a demand of payment will not certainly make the debt due.*

1 Robinson v. Hurley, 11 Iowa 410, 79 Am. Dec. 497.

2 Johnson v. Dexter, 2 McArthur 530.

8

§§ 640, 641.

'Stokes v. Frazier, 72 Ill. 428.

A transfer of corporate stocks by an indorsement in blank confers upon the pledgee the power to sell them upon default without first having them transferred to his name upon the books of the corporation. His sale will at least pass the title subject only to the rights of the corporation itself, except in states in which the legal title to shares of stock is regarded as being in the holder of the registered title, and where the interest of such holder is subject to attachment in a suit against him so long as he is holder upon the books of the corporation.1

§ 721. The holder of stocks or bonds of a corporation, as collateral, may sell them, because that is the usual method of turning such securities into money; the sale being made at public auction, after demand of payment and due notice of the sale. Such securities are expressly designed to be circulated and sold in the stock market; and it is to be presumed that, in making a pledge of such securities, the parties contemplate a sale of them in case the debt which they secure is not paid according to agreement.

Interest accruing upon collateral securities may, in the absence of any agreement to the contrary, be properly collected by the pledgee, and applied to the debt secured. Thus, if a bond with interest coupons be the subject of a pledge, an authority in the pledgee to collect the interest as it becomes payable is necessarily implied.

1 Ex parte Sargent, L. R. 17 Eq. 273; France v. Clark, 22 Ch. D. 830; Canfield v. Minneapolis Ag. & Mech. Asso., 4 McCrary 646.

2 Cortelyou v. Lansing, 2 Caines Cas. (N. Y.) 200; Brown v. Ward, 3 Duer (N. Y.) 660; Washburn v. Pond, 2 Allen (Mass.) 474; Union Cattle Co. v. International Trust Co., 149 Mass. 492, 501, 21 N. E. Rep. 962; Guinzburg v. H. W. Downs Co., 165 Mass. 467, 43 N. E. Rep. 195; Travers v. Leopold, 124 Ill. 431, 16 N. E. Rep. 902; and see Fletcher v. Dickinson, 7 Allen (Mass.) 23; Vaupell v. Woodward, 2 Sandf. Ch. (N. Y.) 143; Wal

A railroad company having

lace v. Berdell, 24 Hun (N. Y.) 379; Canfield v. Minneapolis Agricultural & Mechanical Asso., 14 Fed. Rep. 801. That railroad bonds can not be sold, but must be collected, see Joliet Iron & Steel Co. v. Scioto Fire Brick Co., 82 Ill. 548, a decision unsupported in reason or authority, and in conflict with prior decisions of the same court, to which this decision makes no reference. Stokes v. Frazier, 72 Ill. 428.

3 Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323.

* Androscoggin R. Co. v. Auburn Bank, 48 Me. 335.