it is held that such banks can not loan money upon mortgages of real estate, if such mortgages are taken as security for loans made at the time, or for future advances;1 for a pledge of stock of such corporations is in no sense a mortgage of the corporate property. The stock of such corporations is personal property. § 79. A national bank can not make a valid loan on the security of its own stock.' It can not become a holder in any way of its own shares, unless this is absolutely necessary to prevent a loss on a debt previously contracted. It can not acquire a lien on its own stock held by persons who are not debtors, even by force of direct by-laws, or articles of association framed for that purpose. Such a lien is against the spirit and policy of the statute, and a bank has no right to make a by-law giving such a lien." 1 Jones on Mortgages, § 134. Bank v. Lanier, 11 Wall. 369; Ha 2 Baldwin v. Canfield, 26 Minn. 43, gar v. Union Nat. Bank, 63 Me. 509. 'Bullard v. Bank, 18 Wall. 589. 1 N. W. Rep. 261, 585. Act of June 3, 1864, CHAPTER III. PLEDGES OF NEGOTIABLE PAPER. I. Delivery and possession, 80-88. III. Collateral for a pre-existing II. Bona fide holder for value, 89–106. debt, 107-133. I. Delivery and Possession. § 80. Delivery and possession are essential to a valid pledge of negotiable paper, in the same way that they are essential to a valid pledge of a corporeal chattel. In a recent case before the supreme court which arose in Louisiana, and was governed by its code, it was held that a pledge of negotiable paper without an actual transfer or delivery of it to the pledgee, it never having been out of the pledgor's actual possession, but always subject to his disposal by way of collection, sale, substitution, or exchange, was not valid as against the pledgor's creditors.' A bank of New Orleans, organized under the National Banking Act, obtained a loan of a million francs from the Credit Mobilier of Paris, upon an agreement to deposit bills and notes with the president of the bank and his partner, Cavaroc & Son. Certain securities were selected and placed in an envelope and handed to the president, for Cavaroc & Son. He handed them to the cashier of the bank for safe keeping. Soon afterwards the securities were handed to the discount clerk, for the purpose of his conveniently attending to their collection and renewal. When any of the notes were paid, the money was 1 Casey v. Cavaroc, 96 U. S. 467; followed in Casey v. National Bank, 96 U. S. 492; Casey v. Schuchardt, 96 U.S. 494; Hook v. Ayers, 80 Fed. Rep. 978; Seymour v. Hendee, 54 Fed. Rep. 563; Jacquet v. Creditors, 38 La. Ann. 863; Conger v. New Orleans, 32 La. Ann. 1250; D'Meza's Succession, 26 La. Ann. 35; Atkinson v. Foster, 134 Ill. 473, 25 N. E. Rep. 528. taken and used by the bank, and other notes were substituted in their place. Many of the notes were exchanged, because more available to the bank in some other transaction. So far as those with whom the bank dealt could perceive, the bank continued to have possession and control of all the securities in its own right, and they all appeared to be equally liable with the other assets to the claims of all the creditors. It was held that there was not such a delivery and possession as is necessary to create a pledge by the law of Louisiana. Aside from being governed by the law of Louisiana, the case was distinguished from that of Clark v. Iselin,' in that the securities in the Louisiana case never went out of the pledgor's actual possession, nor were the bills and notes indorsed by the bank to the pledgee. But in Clark v. Iselin the title was transferred to the pledgee, so that he held the paper by way of mortgage as well as pledge; and hence the actual possession of the securities was of less importance. A mortgage may be valid notwithstanding the mortgagor has possession. In Casey v. Cavaroc, Mr. Justice Bradley, upon this point, said: "It must not be overlooked that the Credit Mobilier has no other claim to the securities in question but that of pledge. A pledge, and possession, which is its essential ingredient, must be made out, or their privilege fails. An agreement for a pledge raises no privilege. There is no mortgage; for the title to the securities was never transferred to them. The evidence of the cashier is, that they were all stamped payable to the order of the bank, when discounted. They were not indorsed by the cashier until the day they were removed by Cavaroc, which was after the bank had failed." The trustees of an estate deposited for safe keeping certain railroad bonds in a bank of which one of the trustees was cashier. Without the knowledge of the president or any director of the bank the cashier took from the bank a sum of money for which he made to the bank his own note which purported to deposit as collateral security for the payment of 1 21 Wall. 360. the note the railroad bonds so deposited for safe keeping. The transaction did not appear in any form upon the books of the bank. After the death of the cashier the note was found, but the bonds did not accompany it. They were found in a separate envelope marked with the cashier's name, and the name of the estate to which they belonged was written on the bonds in the cashier's hand. It did not appear that the president of the bank or either of the directors had ever had any knowledge of the note or the bonds in the cashier's life-time. It was held that the surviving trustee was entitled to recover the bonds from the bank, there being no evidence that they had actually been delivered to the bank. The cashier's possession was the possession of the trustees, and not of the bank, as the bonds remained under his personal control. "It required an actual delivery, or the passing of the property from the hands of the cashier to the possession of the bank to vest the title in the latter. The bank did not accept them or know of the promise to pledge them.”” § 81. There are statutory provisions upon this subject in a few states. Thus in Georgia' it is provided that promissory notes and evidences of debt may be delivered in pledge. The receiver in pledge or pawn of promissory notes is such a bona fide holder as will protect him, under the same circumstances as a purchaser, from the equities between the parties, but not from the true owner, if fraudulently transferred, though without notice to him. The Civil Code of Louisiana' provides that when a debtor wishes to pawn a claim on another person, he must make a transfer of it in the act of pledge, and deliver to the creditor to whom it is transferred the note or instrument which proves its existence, if it be under private signature, and must indorse it if it be negotiable. Fisher v. National Bank, 48 N. J. Law 390, 4 Atl. Rep. 444. 2 Code 1873, § 2139. But the delivery of title deeds creates no pledge. 3 R. Civil Code 1900, arts. 3156, 3158, 3160, 3161; Fluker v. Bullard, 2 La. Ann. 338. When a debtor wishes to pawn promissory notes, bills of exchange, stocks, obligations or claims upon other persons, he shall deliver to the creditors the notes, bills of exchange, certificates of stock, or other evidences of the claims or rights so pawned; and such pawn so made, without further formalities, shall be valid as well against third persons as against the pledgors thereof if made in good faith. When the thing given in pledge consists of a credit not negotiable, it is necessary, not only that the proof of the pledge be made by an authentic act or by act under private signature duly recorded, but that a copy of this act shall have been duly served on the debtor of the credit given in pledge. On the other hand, this notification of the act of pledge to the person owing the debt pledged shall not be necessary, if the debt is evidenced by a note or other instrument payable to the bearer or to order; because in that case it will suffice that the note or instrument shall have been indorsed by the person pledging it, to invest the creditor with the privilege above mentioned. § 82. Parol evidence is admissible to establish the fact that a transfer of negotiable paper was intended simply as collateral security, and not as an absolute transfer.' Such evidence is admissible for this purpose upon the same grounds that it is admissible to show that an absolute conveyance of real or personal property was intended to operate only as a mortgage." It is always competent to show by parol that one to whom negotiable paper has been made or transferred in terms absolutely in fact holds it as security only. § 83. Yet the delivery need not always be actual. A delivery is sufficient, which vests the title and control of the paper 1 Stevens v. Wiley, 165 Mass. 402, 406, 43 N. E. Rep. 177; Minchin v. Minchin, 157 Mass. 265, 32 N. E. Rep. 164; Leighton v. Bowen, 75 Me. 504; Hazzard v. Duke, 64 Ind. 220; Wood v. Matthews, 73 Mo. 477; Johnson v. JONES PLEDGES-6 Huston, 17 Mo. 58; Sayre v. King, 17 3 2 Jones on Mortgages, §§ 282-342; Jones on Chattel Mortgages, §§ 22-24. Kelly v. Ferguson, 46 How. (N.Y.) Pr. 411; Van Pelt v. Otter, 2 Sweeny (N. Y.) 202. |