the pledge affected by the pledgee's obtaining a judgment against the pledgor for the amount of the debt." Though the debt may be merged in the judgment, the obligation to pay still remains in a new form and evidenced by a higher security; but the property pledged for its payment still remains liable therefor. The pledgee in a suit on the debt may even, as in other cases, attach the pledged goods; but by so doing, it seems, he waives the lien of the pledge, and substitutes therefor the in rem rights of an attaching creditor.81 When the judgment is fully satisfied, however, this is equivalent to a payment of the debt, which, of course, immediately extinguishes the pledge.82

In this connection it might be noted that so independent are the pledge and the debt secured (as far as the pledgee is concerned) that the pledge may be (and frequently is) terminated without at all affecting the debt. Thus a valid tender of the amount of the debt, or a redelivery of the goods to the pledgor, would terminate the pledge; but neither the tender by the pledgor nor the redelivery by the pledgee would extinguish the debt, which would still continue. 84

85

Since the right to sue on the debt is an independent one, which can be exercised by the pledgee without proceeding against the goods pledged, the pledgor, when thus sued, cannot set off the value of such goods, and thereby reduce the amount of the pledgee's recovery. The existence of such a right on the pledgor's part would practically negative all that has just been said in regard to the relation between the debt and the pledge. When there has been a conversion of the pledged goods by the pledgee, this, of course, gives a right of action to the pledgor. Whether the pledgor can set this up in defense, by way of set-off or recoupment, when sued

80 Fairbank v. Merchants' Nat. Bank of Chicago, 132 Ill. 120, 22 N. E. 524; Barnes v. Bradley, 56 Ark. 105, 19 S. W. 319; Black v. Reno (C. C.) 59 Fed. 917; SMITH v. STROUT, 63 Me. 205, Dobie Cas. Bailments and Carriers, 129; Jones v. Scott, 10 Kan. 35; Charles v. Coker, 2 S. C. 122. Even securing an execution on the judgment and arresting the debtor does not affect the pledgee's right to hold the pledged goods. SMITH v. STROUT, 63 Me. 205, Dobie Cas. Bailments and Carriers, 129.

81 Citizens' Bank v. Dows, 68 Iowa, 460, 27 N. W. 459; SMITH v. STROUT, 63 Me. 205, Dobie Cas. Bailments and Carriers, 129; Sensenbrenner v. Matthews, 48 Wis. 250, 3 N. W 599, 33 Am. Rep. 809; Legg v. Willard, 17 Pick. (Mass.) 140, 28 Am. Dec. 282; Whitaker v. Sumner, 20 Pick. (Mass.) 399; Buck v. Ingersoll, 11 Metc. (Mass.) 226. Contra: Arendale v. Morgan, 5 Sneed (Tenn.) 703.

82 Post, 89.

83 Post, $89.

84 Jones, Collateral Securities (3d Ed.) § 592; Mitchell v. Roberts (C. C.) 17 Fed. 776.

85 Winthrop Sav. Bank v. Jackson, 67 Me. 570, 24 Am. Rep. 56.

on the debt by the pledgee, is a question depending largely on the pleading, practice, and the statutes of the various states. The liberalizing trend of modern procedural law, though, has been toward allowing this to be done.se In those states which permit this to be done, it is generally held that the pledgee, when suing on the debt, must produce the pledged goods or account for their nonproduction.87

SAME-SALE OF THE PLEDGED GOODS

88. The pledgee may sell the pledged goods:

(1) At common law, upon notice to the pledgor.

(2) By a proceeding in equity, when his common-law right of sale is not clear, or is disputed, or when an accounting is necessary.

(3) Under a power of sale given by the pledge contract. (4) Under a power of sale given by statute, which either may or may not take away the right to sell at common law or under the pledge contract, according to the language of the particular statute.

Sale at Common Law

Perhaps the most frequent procedure, upon the pledgor's default, is a sale of the pledged goods by the pledgee under the power of sale existing at common law by virtue of the pledge.88 An assignee of the pledgee's interest has the same right to sell that the pledgee has. Where the pledgor is not the owner of the goods, and pledg

86 Stearns v. Marsh, 4 Denio (N. Y.) 227, 47 Am. Dec. 248; Cass v. Higenbotam, 27 Hun (N. Y.) 406, 408; Bigelow v. Walker, 24 Vt. 149, 58 Am. Dec. 156; Bank of British Columbia v. Marshall (C. C.) 11 Fed. 19; Donnell v. Wyckoff, 49 N. J. Law, 48, 7 Atl. 672; Haskell v. Africa, 68 N. H. 421, 41 Atl. 73.

87 Jones, Collateral Securities (3d Ed.) § 596; Ocean Nat. Bank of City of New York v. Fant, 50 N. Y. 474; Smith v Rockwell, 2 Hill (N. Y.) 482; Stuart v. Bigler's Assignees, 98 Pa. 80; Spalding v. Bank of Susquehanna County, 9 Pa. 28.

88 Mauge v. Heringhi, 26 Cal. 577; Vaupell v. Woodward, 2 Sandf. Ch. (N. Y.) 143; Garlick v. James, 12 Johns. (N. Y.) 146, 7 Am. Dec. 294; De Lisle v. Priestman, 1 Browne (Pa.) 176; Cushman v. Hayes, 46 Ill. 145; Union Trust Co. v. Rigdon, 93 In. 458; Robinson v. Hurley, 11 Iowa, 410, 79 Am. Dec. 497; Kemp v. Westbrook, 1 Ves. (Eng.) 278; Union Cattle Co. v. International Trust Co., 149 Mass. 492, 21 N. E. 962; Sharpe v. National Bank of Birmingham, 87 Ala. 644, 7 South. 106; McDowell v. Chicago Steel Works, 124 Ill. 491, 16 N. E. 854, 7 Am. St. Rep. 381.

89 Ante, § 77; Jones, Collateral Securities (3d Ed) § 418; Donald v. Suckling, L. R. 1 Q. B. (Eng.) 585; Talty v. Freedman's Sav. & T. Co., 93 U. S. 321, 23 L. Ed. 886.

es merely his interest therein, then, of course, the pledgee can sell only the pledgor's limited interest.""

This common-law sale is a general right, but does not extend to pledges of commercial paper. It is contemplated that the proper method of realizing on negotiable bills and notes is by collecting them 2 rather than selling them. In such a case, the pledgee should hold the bills or notes, collect them as they fall due, and apply the proceeds towards the payment of the debt secured. The pledgee would not be justified in selling such paper at less than its value, either at a private or public sale, unless so authorized by the pledge contract. But negotiable bonds, which (especially in the case of

94

* Harding v. Eldridge, 186 Mass. 39, 71 N. E. 115.

91 For remedies on pledges of negotiable paper, see Jones, Collateral Securities (3d Ed.) c. 17; Stevens v. Wiley, 165 Mass. 402, 43 N. E. 177; Boswell v. Thigpen, 75 Miss. 308, 22 South. 823; E. F. Hallack Lumber & Mfg. Co. v. Gray, 19 Colo. 149, 34 Pac. 1000.

92 ALEXANDRIA, L. & H. R. CO. v. BURKE, 22 Grat. (Va.) 254, Dobie Cas. Bailments and Carriers, 135; Union Trust Co. v. Rigdon, 93 Ill. 458; Zimpleman v. Veeder, 98 Ill. 613; Fletcher v. Dickinson, 7 Allen (Mass.) 23, 25; Brookman v. Metcalf, 5 Bosw. (N. Y.) 429; Brown v. Ward, 3 Duer (N. Y.) 660; Lamberton v. Windom, 12 Minn. 232 (Gil. 151), 90 Am. Dec. 301; Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323; In re Litchfield Bank, 28 Conn. 575; Whitteker v. Charleston Gas Co., 16 W. Va. 717; Hunt v. Nevers, 15 Pick. (Mass.) 500, 26 Am. Dec. 616; Joliet Iron & Steel Co. v. Scioto Fire Brick Co., 82 Ill. 548, 25 Am. Rep. 341; Wheeler v. Newbould, 16 N. Y. 392; Fletcher v. Dickinson, 7 Allen (Mass.) 23, 25. So a savings bank book cannot be sold by a pledgee. Boynton v. Payrow, 67 Me. 587 An ordinary note and mortgage pledged cannot be sold. Morris Canal & Banking Co. v. Fisher, 9 N. J. Eq. 667, 64 Am. Dec. 423.

93 Cleghorn v. Minnesota Title Insurance & Trust Co., 57 Minn. 341, 59 N. W. 320, 47 Am. St. Rep. 615; Handy v Sibley, 46 Ohio St. 9, 17 N. E. 329; Zimpleman v. Veeder, 98 Ill. 613. See ante.

94 Powell v. Ong, 92 Ill. App. 95; Union Trust Co. v. Rigdon, 93 Ill. 458; Fletcher v. Dickinson, 7 Allen (Mass.) 23, 25; Washburn v. Pond, 2 Allen (Mass.) 474; Stearns v. Marsh, 4 Denio (N. Y.) 227, 47 Am. Dec. 248; Hunter v. Hamilton, 52 Kan. 195, 34 Pac. 782. A power of sale does not deprive the pledgee of the right to sue on the paper. Nelson v. Eaton, 26 N. Y. 410; Nelson v. Edwards, 40 Barb. (N. Y.) 279; Nelson v. Wellington, 5 Bosw. (N. Y.) 178. Where negotiable paper is pledged as collateral security for a loan, and the lender is authorized to sell the collaterals in case the loan is not paid at maturity, such authority does not limit the rights of the lender to a sale of the collateral, so as to prevent him from suing thereon. Holland Trust Co. v. Waddell, 75 Hun, 104, 36 N. Y. Supp. 980. Though a pledgee cannot, without express authority, sell commercial paper pledged as collateral security, a court may, under proper circumstances, order a judicial sale of it. Cleghorn v. Minnesota Title Insurance & Trust Co., 57 Minn. 341, 59 N. W. 320, 47 Am. St. Rep. 615. The foreclosure and sale of a negotiable instrument held as a pledge is authorized, when the maker resides in a remote country or a different state, and it does not appear that he has any property within the jurisdiction subject to seizure and sale. Donohoe v. Gamble, 38 Cal. 341,

corporations) are more formal instruments and run for much longer periods than ordinary commercial paper, can be sold before their maturity, at a common-law sale, without authority to that effect in the pledge contract.95

97

96

Though this common-law sale is not dependent on express authority in the pledge contract, and requires no judicial proceedings, yet the sale must be a public one," because in that way a better price is ordinarily secured and less opportunity for fraud or unfair dealing is afforded to the pledgee. Since the sale of stocks, bonds, etc., on the Stock Exchange or Boards of Trade and similar institutions is ordinarily more advantageous than a sale at public auction, the sounder view seems to be that such a sale is proper," though there are cases holding the contrary.1

99

Due notice both of the time and place of the sale must be seasonably given to the pledgor. The purpose of this requirement is

99 Am. Dec. 399. Where a bond and mortgage having several years to run are assigned as collateral security for a loan due in three months, but the assignment does not provide for a sale of the security, the lender, on maturity of the loan, may sue in equity to procure a sale. Porter v. Frazer, 6 Misc. Rep. 553, 27 N. Y. Supp. 517. Where a mortgage and note were assigned as collateral security, with authority in the assignee, on default, to sell the mortgage, the pledgee was authorized to sell the note or debt. Watson v. Smith, 60 Minn. 206, 62 N. W. 265.

95 Jones, Collateral Securities (3d Ed.) § 657a; Duffield v. Miller, 92 Pa. 286; Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323; Newport & C. Bridge Co. v. Douglass, 12 Bush. (Ky.) 673; ALEXANDRIA, L. & H. R. CO. v. BURKE, 22 Grat. (Va.) 254, Dobie Cas. Bailments and Carriers, 135; Brown v. Tyler, 8 Gray (Mass.) 135, 69 Am. Dec. 239.

96 Jerome v. McCarter, 94 U. S. 734, 24 L. Ed. 136; Lockwood v. Ewer, 9 Mod. (Eng.) 275.

97 Lockwood v. Ewer, 2 Atk. (Eng.) 303, 9 Mod. 275; Pothonier v. Dawson, Holt (Eng.) 385; Guinzburg v. H. W. Downs Co., 165 Mass. 467, 43 N. E. 195, 52 Am. St. Rep. 525; McDowell v. Chicago Steel Works, 124 Ill. 491, 16 N. E. 854, 7 Am. St. Rep. 381.

98 Bryson v. Rayner, 25 Md. 424, 90 Am. Dec. 69; Jeanes' Appeal, 116 Pa. 573, 11 Atl. 862, 2 Am. St. Rep. 624; King v. Texas Banking & Ins. Co., 58 Tex. 669; Pogue v. Hillman, 85 Ohio St. 463, 98 N.. E. 1131; Williams v. Hahn, 113 Cal. 475, 45 Pac. 815; Rankin v. McCullough, 12 Barb. (N. Y.) 103. 99 MARYLAND FIRE INS. CO. v. DALRYMPLE, 25 Md. 242, 89 Am. Dec. 779, Dobie Cas. Bailments and Carriers, 130; Brown v. Ward, 3 Duer (N. Y.) 660. See, also, as to sales at board of trade rooms, Fitzpatrick v. Bank of Forrest City, 95 Ark. 542, 129 S. W. 795; Earle v. Grant, 14 R. I. 228; Stern v. Simons, 77 Conn. 150, 58 Atl. 696.

1 Hagan v. Continental Nat. Bank, 182 Mo. 319, 81 S. W. 171; Brass v. Worth, 40 Barb. (N. Y.) 648; Dykers v. Allen, 7 Hill (N. Y.) 497, 42 Am. Dec. 87.

2 National Bank of Illinois v. Baker, 128 Ill. 533, 21 N. E. 510, 4 L. R. A. 586; Sell v. Ward, 81 Ill. App. 675; Stearns v. Marsh, 4 Denio (N. Y.) 227, 47 Am. Dec. 248; Luckett v. Townsend, 3 Tex. 119, 49 Am. Dec. 723; Wilson

in order that the pledgor may exert himself in procuring the attendance of prospective buyers and thus enhance the price obtained, and that the pledgor may have an opportunity to attend the sale and see that it is fairly conducted. Further, the pledgor has the right to redeem the pledged goods by paying the debt secured at any time before the sale is actually made. Accordingly, when the pledgor is otherwise fully informed on the subject, no matter from what source, a further and more formal notice by the pledgee is unnecessary. The only question is, Did the pledgor have actual notice of the time and place of sale? The safest course, of course, is to have formal written notice served on the pledgor, for then the fact of notice can easily be proved; otherwise, the pledgee may find difficulty in proving that the pledgor was actually informed of the time and place of the sale a reasonable time before such sale was to take place."

In making the sale the pledgee acts in a quasi fiduciary capacity and must in all respects exercise the utmost fairness and good faith. The courts will closely scrutinize such sales, particularly v. Little, 2 N. Y. 443, 51 Am. Dec. 307; E. F. Hallack Lumber & Manuf'g Co. v. Gray, 19 Colo. 149, 34 Pac. 1000; Smith v. Savin, 141 N. Y. 315, 36 N. E. 338; Wheeler v. Newbould, 16 N. Y. 392; Garlick v. James, 12 Johns. (N. Y.) 146, 7 Am. Dec. 294; Indiana & I. C. Ry. Co. v. McKernan, 24 Ind. 62; Small v Housman, 208 N. Y. 115, 101 N. E. 700; Colton v. Oakland Bank of Savings, 137 Cal. 376, 70 Pac. 225; Green v. Lafayette County Bank, 128 Mo. 559, 30 S. W. 319. When the pledgor's liability on the debt or obligation secured is not fixed until a demand on him, such demand or notice must be given by the pledgee in addition to the notice of sale. Garlick v. James, 12 Johns. (N. Y.) 146, 7 Am. Dec. 294; Moffat v. Williams, 5 Colo. App. 184, 36 Pac. 914; Milliken v. Dehon, 27 N. Y. 364; Wilson v. Little, 1 Sandf. (N. Y.) 351. Consent that the pledgee may sell without giving notice does not relieve him from the necessity of demanding payment of the debt before he sells. Wilson v. Little, 2 N. Y. 443, 51 Am. Dec. 307. The sale of stock pledged as collateral, made in default of payment of a demand for a larger sum than that for which the stock was pledged, is a conversion of such stock, though, immediately prior to such sale, the pledgee offer to accept the amount justly due, plaintiff not having a reasonable time within which to comply with such offer. Blood v. Erie Dime Savings & Loan Co., 164 Pa. 95, 30 Atl. 362. The notice must be to the pledgor or his agent, or to some one authorized to receive notice. Notice given to an agent having no authority over the pledge is not sufficient. Washburn v. Pond, 2 Allen (Mass.) 474. Of course, the pledgor may waive any notice. Williams v. United States Trust Co. of New York, 133 N. Y. 660, 31 N. E. 29; Carson v. Iowa City Gaslight Co., 80 Iowa, 638, 45 N. W. 1068; Dullnig v. Weekes, 16 Tex. Civ. App. 1, 40 S. W. 178. 8 Milliken v. Dehon, 27 N. Y. 364, 369; ante, § 75.

ALEXANDRIA, L. & H. R. CO. v. BURKE, 22 Grat. (Va.) 254, Dobie Cas. Bailments and Carriers, 135; Earle v. Grant, 14 R. I. 228.

5 ALEXANDRIA, L. & H. R. CO. v. BURKE, 22 Grat. (Va.) 254, Dobie Cas. Bailments and Carriers, 135.

6 FOOTE v. UTAH COMMERCIAL & SAVINGS BANK, 17 Utah, 783, 54