pledged its own bonds as collateral security, and afterwards, by its agents, having paid the interest coupons as they matured, is precluded by such payment from claiming that cutting off and collecting the coupons operated as a conversion of the bonds.1

§ 722. The remedies of a broker who has purchased stock for a customer on a deposit of a margin are: 1st. By suit for the purchase-money, after tendering the stock and demanding payment; 2d. By suit for a breach of the contract, wherein the broker would charge himself with the stock purchased and the advance made upon it; 3d. By a public sale of the stock purchased, after proper demand upon the customer, and notice to him of the time and place of sale, followed by suit against the customer for any deficiency there might be.

§ 723. A custom of brokers to sell at the stock exchange, without the notice required at common law, stocks and bonds deposited as collateral, is declared to be unreasonable and void. As has already been shown,' a purchase of stock by a

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

? Merriam v. Kellogg, 58 Barb. (N. Y.) 445; Bement v. Smith, 15 Wend. (N. Y.) 493.

3 § 503; Wheeler v. Newbould, 16 N. Y. 392; Lawrence v. Maxwell, 53 N. Y. 19.

A decision that such a custom is not illegal as between parties familiar with, and dealing on the basis of, such custom, was rendered in the common pleas court of Philadelphia, in the case of Colket v. Ellis, 10 Phila. (Pa.) 375, 379. Mr. Justice Mitchell, after referring to several cases upon the general subject of usages, said: "I think their effect may be summed up to be, that where no statute or principle of public policy intervenes, but a rule of law is a mere privilege which may be waived, there is no reason why the waiver may not be as well by a custom known to, and acquiesced in by, the parties as by an express

contract. Without intimating what would be the effect if such a usage as the present were set up against an outside party, I am of opinion that, as between plaintiffs and defendants, both members of the board of brokers, familiar with and dealing on the basis of it, it is a valid and lawful custom, and controls the rights of these parties.”

But, aside from the matter of custom, the learned judge was of opinion that, in this case, there was an assent on the part of the customer to the sale at the time it was made, and, moreover, a ratification of it after it was made.

This question was raised, but not decided, in Covell v. Loud, 135 Mass. 41, 16 Cent. L. J. 471, 46 Am. Rep. 446. As in the previous case, there was an assent to the sale by the customer.

* §§ 495-500.

broker for a customer, upon a margin, creates the relation of pledgor and pledgee between them. Therefore, in a case in New York, where an offer of testimony was made to show a custom of brokers to sell without notice, the testimony was held to be inadmissible.' Chief Justice Hunt, in relation to this part of the case, said: "The broker has no right to sell without notice. A practice or custom to do otherwise would have no more force than a custom to protest notes on the first day of grace, or a custom of brokers not to purchase the shares at all, but to content themselves with a memorandum or entry in their books of the contract made with their customer. Such practice, in each case, would be in hostility to the terms of the contract, an attempt to change its obligation, and would be void. The proof, therefore, can not be legally given." If the broker desires to possess himself of the power to sell the collateral, on failure to repay advances, without notice of time and place of sale, he must make an agreement that shall permit him to do so.2

§ 723a. A broker's customer has equities as against bankers to whom the broker has pledged the customer's stock without the latter's consent. Prior to May 8, 1884, a person deposited with a firm of brokers in New York city one hundred shares of corporate stock as security for any indebtedness to that firm. On that date the brokers, without the knowledge or consent of the customer, pledged said stock, with other shares of stock belonging to said firm, to bankers as security for a loan. The loan was made subject to the rules of the New York stock exchange, of which the member of each firm who negotiated it was a member. The bankers were bona fide pledgees, having no knowledge that the brokers were not the owners of all the stock pledged. The customer was not, in fact, at the time of the pledge equitably indebted to the broker in any sum whatever, and did not thereafter become so indebted. On May 14,

'Markham v. Jaudon, 41 N. Y. 235; Smith v. Savin, 141 N. Y. 315, 36 N. E. Rep. 338, 57 N. Y. St. Rep. 417, affirming 69 Hun 311, 23 N.Y. Supp. 568.

2 Taylor v. Ketchum, 5 Robt. (N.Y.) 507, 513, per Garvin, J.

1884, the brokers failed and made an assignment. The customer on that day learning of that fact, and also then learning for the first time that his stock had been so pledged, notified the bankers of his interest and requested a statement of the amount for which his stock was held. The bankers refused to give any information or to recognize plaintiff's rights. The bankers on the same day, without notice to customer or the brokers, and in violation of the rules of the exchange, sold all the stock so pledged. The customer's stock sold for about $8,000, and after applying the proceeds of all the stock pledged in payment of the loan, there remained about $3,000 in the hands of the bankers. The customer did not learn of the sale of his stock until June 21, 1884, at which time the price of said stock had reached par and the prices of the other stock sold had so advanced that if they had been held and then sold the proceeds would have paid the loan, leaving the customer's stock free from any claim. In an action for conversion it was held that the bankers had no right to apply the balance in their hands upon another debt due them from the brokers; also, that while the bankers, as bona fide pledgees, were entitled to regard the brokers as owners of all the stock pledged until notified of the customer's rights, having been so notified prior to the sale, he then stood, with reference to his stock, as surety, with the right to compel them to apply the proceeds of the other stocks before resorting to his stock; that as to his stock, he had the right to require a sale in accordance with the rules of the stock exchange, and could treat the unlawful sale as a conversion, and after the proceeds of the sale of the other stocks had been applied to the payment of the loan, he was entitled to the highest price which his stock reached within a reasonable time after its illegal sale, and to judgment for that sum, deducting therefrom the balance due the bankers after such application; and that as the customer did not learn of the sale until after June 21st, that was a reasonable time; but it was held, in regard to the other stock. sold, that the customer was not entitled to charge the bankers with the highest price because of the unlawful sale, and so

JONES PLEDGES-49

long as it sold at its full market value at the time of sale, he could not complain.'

§ 724. The bankruptcy of the pledgor of stock or negotiable bonds of a corporation does not deprive the pledgee of the right to sell and transfer them, upon the pledgor's default. The right is presumable from the nature of the transaction, even in the absence of any express stipulation in the contract of pledge that the pledgee may sell on default. The Bankruptcy Act takes away no right secured to the pledgee by his contract.2

If, in the proof of a promissory note in bankruptcy, the creditor agrees with the assignee in bankruptcy that bonds or stocks held as collateral shall, for the purpose of proof, be credited as of a certain value, or even if the agreement be that the collateral shall be sold at a certain price, for the purpose of fixing the amount provable against the bankrupt's estate, such agreement is not conclusive as against another party to the note that the creditor actually received the amount so credited, or that he made any actual sale of the collateral which such other party was entitled to avail himself of. Whether there was any such sale is a question of fact.3

§ 725. A creditor can not apply collateral security in satisfaction of the debt in any way save by notice and public sale, or in pursuance of a contract for private sale. A loan was made in 1855 upon certain shares of telegraph stock. In 1863 the debtor offered to pay the debt, and demanded a return of the stock. The creditor replied that he had not expected the stock would ever be redeemed, and had sold his own stock of the same company at a low price, because he did not wish to have so much of it, retaining that which he had received in

1 Smith v. Savin, 141 N. Y. 315, 36 N. E. Rep. 338, 57 N. Y. St. Rep. 417. 2 Jerome v. McCarter, 94 U. S. 734; In re Grinnell, 9 N. Bank. R. 137.

3 Globe Nat. Bank v. Ingalls, 130 Mass. 8.

Lewis v. Mott, 36 N. Y. 395; McNeil v. Tenth Nat. Bank, 55 Barb. (N. Y.) 59; Feige v. Burt, 118 Mich. 243, 77 N. W. Rep. 928.

pledge. Inasmuch as he would have lost in case the stock had declined, having nothing else to look to for his claim, he thought it only just that he should have the benefit of a rise in the stock, having taken all the risk himself. But, of course, the court told him that he could not appropriate the stock to the payment of the debt at his own option, but only in the manner the law provides.'

§ 726. The general rules in regard to demand and notice in the case of the sale of an ordinary chattel under a pledge apply to sales of stocks held in pledge. If the obligation secured be not payable at a fixed time, a demand of payment is necessary before proceeding to give notice of the time and place of sale. Such a demand is necessary to create a default. Thus, a broker carrying stocks upon a margin must demand payment either of the balance of the account, or demand that the margin be made good, in case there be a special contract in regard to the amount of the margin to be kept.

A notice that unless a specified amount of the loans secured be paid, the stock collateral would be "used," does not constitute a demand sufficient to authorize a sale.

The time and place of sale must be reasonable. But a sale in a state other than that where the pledge was made is not necessarily invalid, and if the pledgor is duly notified of such sale and makes no objection to it, he can not afterwards object to the sale on account of the place where it was made.*

A sale at auction is not invalid for the reason that only one bidder was present and the stock was sold for less than its value."

1 Diller v. Brubaker, 52 Pa. St. 498, 91 Am. Dec. 177; and see Davis v. Funk, 39 Pa. St. 243, 80 Am. Dec. 519; Sitgreaves v. Farmers & Mechanics' Bank, 49 Pa. St. 359; Conyngham's Appeal, 57 Pa. St. 474.

France v. Clark, 22 Ch. D. 830. 'Genet v. Howland, 45 Barb. (N. Y.) 560, 30 How. Pr. 360.

4

Guinzburg v. H. W. Downs Co., 165 Mass. 467, 43 N. E. Rep. 195.

5

Guinzburg v. H. W. Downs Co., 165 Mass. 467, 43 N. E. Rep. 195; and see Learned v. Geer, 139 Mass. 31, 29 N. E. Rep. 215; Wing v. Hayford, 124 Mass. 249.