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the pledge itself remaining the property of the pledgor. The
mortgagee acquired the property of the thing mortgaged, the
mortgagor parting with the property as in the case of a sale,
reserving only the right to defeat the transfer and re-acquire the
property by paying the debt. But this distinction has not always
been recognized, or, at least, not accurately observed. It seems,
however, to be now held, that possession of a pledge must be



(a) lu Cortelyou v. Lansing, 2 Caines
Cas. 200, the distinction between a pledge
and a mortgage, and the peculiar qualities
of a pledge, are very fully and ably consid-
ered. In Barrow v. Paxton, 5 Johns. 260,
the case of Cortelyou v. Lansing being
cited by counsel, Kent, C. J., said • " That
case was never decided by this court. It
was argued once, and I had prepared the
written opinion which appears in the re-
port of Mr. C'aines ; but the court directed
a second argument, which, for some rea-
son or other, was never brought on, so
that no decision took place on the points
raised in the case. How my oninion got
into print 1 do not know. It was prob-
ably lent to some of tlie bar, and a copy
taken, wliich the reporter has erroneously
published as the opinion of this court."
This circumstance may lessen its author-
ity. But as Chancellor Kent has referred
to it in his Commentaries, we venture to
do so also. Whatever be its authority,
of its instructiveness there can be no
doubt. The learned judge says : " The
note in question came under the strict
definition of a pledge. It was delivered
to the defendant, with a right to detain
as a security for his debt, but the legal
property did not pass, as it does in the
case of a mortgage, with a condition of a
defeasance. 'Ihe general ownership re-

120



mained with the intestate, and only a
special property passed to the defendant.
It is, therefore, to be distinguished from a
mortgage of goods; for that is an abso-
lute pledge, to become an absolute in-
terest if not redeemed at a fi.xed time.
Besides, delivery is essential to a pledge ;
but a mortgage of goods is, in certain
cases, valid without delivery. The mort-
gage and the pledge or pawn of goods
seem, however, generally to have been
confounded in the l)Ooks, and it was not
until lately that this just discrimination
has been well attended to and explained."
See also Homes v. Crane, 2 Pick. 607 ;
Jones V. Smith, 2 Ves. Jr 372, 378;
Brownell v. Hawkins, 4 Barb 491 ;
Haskins v Patterson, 1 Edm. Sel. Cas.
201. In this last vase, Marvin, J., said:
" A mortgage is a sale of goods, with a
condition that if the mortgagor performs
some act it shall be void. If the condi-
tion is not performed, the goods become
the absolute property of the mortgagee.
Before the happening of the contingency
upon which the title is to be defeated
or become absolute, the possession of
the goods may be in the mortgagor or
the mortgagee. In the case of a pledge,
the property must be delivered to the
pawnee. This is of the very essence of a
pledge."



CH. XI.] BAILMENT. * 114

delivered to the pledgee ; (5) that this possession may be accord-
ing to the nature of the thing, and where the pledge does not
permit of manual delivery, but consists of stocks, which are
transferred upon the books of the company with issue of a new
certificate, if the transfer be to secure a debt, and the debtor has
a right to the restoration of the property on payment of the debt
at any time, the transaction is a pledge and not a mortgage,
although the legal title passes to the creditor. This is a very nice,
and perhaps a difficult distinction ; but, as a consequence of it, it
is held that the creditor takes the stock only to hold, and not to
use ; that the property is not in him ; that he cannot sell
the stock until the debt is due, and that if it be * payable * 114
on demand, or payable presently without demand, he can-
not sell until demand, even if it was agreed between the parties
that he might sell without notice to the debtor ; (Jbh) that if he
sells, trover may be maintained against him by the debtor as for
a wrongful conversion, although the debt be not paid.

As to the damages, it seems that the debtor may recover, if
the stocks had risen in value, that enhanced value. Whether,
if the stocks had risen and fallen, the debtor is limited to the
value at the time of the unauthorized sale, or may have the
highest value down to the time of trial, is not certainly decided ;
but it seems that he may have the highest value, (c) ^

(h) See the cases cited in the preced- same, on the non-performance of the
iug note. promise contained in the note, without
(bb) Campbell v. Parker, 9 Bosvv. 322. notice to the plaintiff. Afterwards, and
(c) All these points were elaborately between the 23d of December and the 3d
considered in the case of Wilson v. Little, of January, following the date of the loan,
1 Sandf. 351 ; s. c. 2 Comst. 443. It was the plaintiff's agent applied to the de-
an action on the case for not returning fendant several times to repay the loan,
stock pledged, and for unlawfully selling and have the stock retransf erred. The
the same. The case came on originally defendant did not comply with his re-
in the Superior Court of the city of New quest, and it afterwards "appeared that
York, and was tried before Sandford, J. he had sold the plaintiff's stock on the
It appeared that on the 20th of Decern- 24th or 25th of December. Between the
ber, 1845, tlie plaintiff borrowed of the 23d of December and the 3d of January,
defendant the sum of S2,000, and gave the market value of the stock in question
his promissory n<^te therefor, payable rose from about sixty-eight dollars per
presently. The jjlaintiff at the same share to eighty-five dollars per sliare
time transferred to tlie defendant fifty On these facts a verdict was taken for
shares of the consolidated capital stock the plaintiff, subject to the opinion of
of the New York and Erie Railroad Com- the court. The court held, 1. That the
pany. The transfer was made on the defendant had no right to sell the stock
books of the cor])oration, where it was until he had first demanded pavment of
standing in the plaintiff's name, and was the plaintiff. 2. That the measure of
absolute in its terms. In the note, how- damages was the value of the stock on
ever, given by plaintiff to the defendant, the 3d of January. Upon the first point,
the stock was mentioned as having been Vander/)oel, J., (delivering the opinion of
deposited with the defendant " as collat- the court, said • "The defendant held the
eral security," with autliority to sell the stock in question as pledgee. It was

1 See Chajjter on Damages.

121



115



THE LAW OF CONTRACTS.



[book III.



* 115 * In this power of disposal, the mortgagee differs greatly
from a pledgee. For it is every day's practice for a mort-



pledged to secure the payment of a note
of $2,000, payable ou demand. A pledgee
cannot dispose of the pledge until tiie
pledgor has failed to comply with his
engagements. If the pledgee sells the
pledge without authoritj', it is a viola-
tion of his trust. It is here contended,
that as the note was payable on demand,
the plaintiff was in default for not pay-
ing it the moment the note was given,
and that the pledgee, before selling the
stock, was not bound to demand the
amount loaned. The cases of sale by
the pledgee, to be found in the books,
are generally those where notes were
payable at a future day, and where the
pledgee sold the tiling pledged before the
notes matured. There the pledgee was
clearly iu the wrong ; for the pledgor had
not failed to comply with his engagement.
Where stock or other property is pledged
as collateral security, to secure the pay-
ment of a note payaitle on demand, can
the ])ledgee proceed to sell immediately,
without first demanding the amount of
the note .'' This, in the absence of judicial
authority, would, to our minds, be repug-
nant to the fair import and spirit of the
contract." After a careful examination of
the authorities, the learned judge con-
tinues: " It may then be safely assumed,
that where an article is pledged to secure
a debt, payable on demand, tlie pledgee
cannot sell without first demanding pay-
ment of the debt on demand. A contrary
rule would, in its practical operation, 1)6
wholly destructive to the existence of a
general property in the pawnor. Every
vestige of the pawnor's interest in the
pledge miglit be destroyed (and that too
witliout his knowledge) within an hour
after the pawnee is clothed with his mere
special property." In reference to the
measure of damages, the learned judge
said : " It is contended that in tracer the
true measure of damages is the value of
the property at the time of its conver-
sion, which, as the defendant contends,
was on the 27th of December, when the
stock ranged in the market from 67^ to
68 per cent. But the present is not in
form, nor indeed is it in snbstanrp, an
action of trover. It is a s])ecial action on
the case, and I cannot imagine why as-
sumpsit could not always have been main-
tained, for not returning to the plaintiff
his stock, after tender to the defendant
of the amount for which it was pledged.
. . . This not being an action of trover,
the true measure of damages is the value
of the stock on the 3d of Januarv,

122



when the stock was sold for $85 per
share. On that day the final interview
took place between the defendant and
Mr. Cutting, the agent of the plaintiff.
The defendant's offer and conversation
on that day may be regarded as con
stituting the final breach. But if it
were otherwise, had the breach occurred
earlier, the rule of damages would have
been the highest value of the stock be-
tween the actual refusal of the defend-
ant to return the same, on being offered
the amount for which it was pledged,
and the commencement of the suit." A
question was made also as to whether
the plaintiff should have tendered to the
defendant the amount due him before
bringing his action. The court, how-
ever, were of opinion, that the evidence
proved that a tender was made, and so
this point was not passed upon. The
case was afterwards carried up to the
Court of Appeals. In that court a ques-
tion was raised which had not been
suggested in the court below, namely,
whether the transaction in question did
not amount to a mortgage instead of a
pledge, on the ground that the legal title
to the stock became vested, by the trans-
fer, in the defendant. Upon tliis part
of the case, Ruggles, J., delivering the
opinion of the court, said : " It is con-
tended, on the part of tlie defendant,
that the transaction was a mortgage and
not a pledge ; that the money was pay-
able immediately, and the stock became
absolutely the projjerty of the appellant,
and was only redeemable iu equity. If
this be true, the Supreme Court, and the
court for the correction of errors must
have rendered their judgments in the
case of Allen r. Dykers, 3 Hill (N. Y.),
593 ; s. c. 7 id. 498, upon a mistaken
view of the law. In that case, as in the
present, there was a loan of money, a
promissory note for the payment of tlie
amount, in which it was stated, that the
borrower had deposited with the lenders
as collateral security, with authority to
sell the same on the non-performance of
the promise, 250 shares of .stock therein
mentioned. The money in that case was
payable in sixty days, — the sale was to
be made at the board of brokers, and
notice waived if not paid at maturity.
The stock was assigned to the lenders
of the money, and the transfer entered
on the books of the company, on the
day the note was given. With respect
to the question whether the stock was
mortgaged or pledged, I can perceive no



CH. XI.]



BAILMENT,



116



gagee *to sell his mortgage, and by this sale transfer the * 116
right of property from himself to the purchaser, subject



difference between that case and the pres-
ent. The question does not appear, by
the report of that case, to have been raised.
It would liave been a decisive point, for if
it had been a mortgage, and not a pledge,
the plaintiff must have failed. The sale
of the stock in that case by the lender,
before the maturity of the note, did not
make it the less decisive. If there had
been good ground for saying, in Allen v.
Dykers, that the stock was mortgaged and
not pledi/eJ, it is nut to be believed that it
would have escaped the attention of the
eminent counsel who argued the cause,
and of both the courts ; and on examining
the question, I am satisfied, that if the
point had been taken, it would have been
overruled. The argument of the defend-
ant in this case is founded on the as-
sumption, that when personal things are
pledged for the payment of a debt, the
general property and the legal title al-
ways remain in the pledgor ; and that in
all cases where the legal title is trans-
ferred to the creditor, the transaction is a
mortgage and not a pledge. This, how-
ever, is not invariably true. But it is
true that possession must uniformly ac-
company a pledge. The right of the
pledgee cannot otherwise be consum-
mated. And on this ground it has been
doubted whether incorporeal tilings, like
debts, money in stocks, &c., which can-
not be manually delivered, were the proper
subjects of a pledge. It is now held that
they are .so ; and there seems to be no
reason why any legal or equitable interest
whatever in personal property may not be
pledged ; provided the intere.st can be put,
by actual delivery or by written transfer,
into the hands or within the power of the
pledgee, so as to be made available to him
for the satisfaction of the debt. Goods at
sea may be passed in pledge by a transfer
of the muniments of title, as by a written
assignment of the bill of lading. This is
equivalent to actual po.sses.sion, because
it is a delivery of the means of obtaining
possession. And debts and choses in ac-
tion are capable, l)y means of a written
assignment, of being conveyed in pledge.
The caj)ital stock of a corporate company
is not capalile of manual delivery. The
scrip or certificate may be delivered, but
that of itself does not carry with it the
stockholder's interest in the corporate
funds. Nor does it necessarily put that
interest under the control of the pledgee.
The mode in which the capital stock of a
corporation is transferred usually depends
on its by-laws. It is so in the case of the



New York and Erie Railroad Company.
The case does not show what the by-laws
of that corporation were. It may be that
nothing short of the transfer of the title
on the books of the company would
have been sufficient to give the defend-
ants the absolute possession of the stock,
and to secure them against a transfer to
some other person. In such case the
transfer of the legal title, being necessary
to the change of possession, is entirely
consistent with the pledge of the goods.
Indeed it is in no case inconsistent with
it, if it appeal's by the terms of the con-
tract that the debtor has a legal right to
the restoration of the pledge on payment
of the debt at any time, although after it
falls due, and before the creditor has ex-
ercised the power of sale. Reeves v.
Capper, 5 Bing. N. C. 136, was a case in
which the debtor ' made over ' to the
creditor, ' as his property,' a chronometer
until a debt of .£50 should be repaid. It
was held to be a valid pledge. In the
present case, the note for the repayment
of the loan and the transfer of the stock
■were parts of the same transaction, and
are to be construed together. The trans-
fer, if regarded by itself, is absolute, but
its object and character are qualified and
explained by the contemporaneous paper
which declares it to be a deposit of the
stock as collateral security for the pay-
ment of S^.OOO, and there is nothing in
the instrument to work a forfeiture of
the right to redeem or otherwise to de-
feat it, except by a lawful sale under the
power expressed in the paper. The gen-
eral property which the pledgor is said
usually to retain, is nothing more than a
legal right to the restoration of the thing
pledged, on payment of the debt. Upon
a fair construction of the note and the
transfer taken together, this right was in
the plaintiff, unless it was defeated by the
sale which the defendant made of the
stock. In every contract of pledge there
is a right of redem])tioii on the part of the
delitor. But in this case that right was
illusory and of no value, if the creditor
could instantly, without demand of payment
and without notice, sell the thing pledged.
We are not required to give the trans.ic-
tion so unreasonable a construction. The
borrower agreed that tiie lender might
sell without notice, but not that he might
sell without demand of payment, wiucli is
a different thing. The lender might iiave
brought his action immediately, for the
bringing an action is one way of demand-
ing pavmeut ; but selling without notice

123



117



THE LAW OF CONTRACTS.



[book III.



*117 to the redemption of *the mortgagor. But the pledgee,
having only the possession and not the property, cannot
transfer the property ; and holding only for security, cannot sell
until the debt becomes due and is unpaid.

Where stock is pledged to a stockbroker, and a note given with
it, stating that the stock was deposited as collateral security, with
authority to sell the same at the board of brokers, if the note was
not paid at maturity, evidence was offered of a uniform usage of
brokers to dispose of stock so pledged at their pleasure, and at
any time, before or after the maturity of the note, and when the
debt was paid, return an equal number of shares of the same
kind ; but this evidence was rejected as contrary to the law regu-
lating these transactions, and inconsistent with the express terms
of the contract, (d) Nor could the broker, in any event, sell the
stock privately, but only at the board of brokers, and openly,
stating how it was held, (e)



is not a demand of payment ; and it is
well settled that where no time is ex-
pressly fixed by contract between the
parties, for the payment of debt secured
by a pledge, the pawnee cannot sell the
pledge, without a previous demand of pay-
ment, although the debt is technically
due immedu\tely." As to a tender by
the plaintiff to the defendant of the debt
due to the latter before bringing the action,
the Court of Appeals held, that the defend-
ant having voluntarily put it out of his
power to restore the pledge, a tender of
the money borrowed would have been
fruitless, and was, therefore, unnecessary.
As to the measure of damages the court
adhered to the rule adopted by the court
below, but based their judgment in this
particular upon the special circumstances
of the case. Rngi/les, J., said: "The
ground on which the defendant insists
that the damages must be estimated ac-
cording to the price of the stock on the
24th of December, is, that the plaintiff, on
learning that the defendant had sold it,
might then have gone into the market,
and purchased at the current price on
that day. But it is evident that he
was prevented from doing so by the re-
peated promises of the defendant to re-
store the stock. Although the plaintiff
was strictly entitled to a re-transfer of the
same shares that were pledged, it appears
that his broker was willing to receive
other stock of the same description and
value, which the defendant promised from
day to day to give, the plaintiff being all
the time ready to pay the money borrowed.
Time having thus been given to the de-
fendant, at his request, for the fulfilment

124



of his obligation, and the plaintiff having
waited for the delivery of the stock for
the accommodation of the defendant,
and having relied on the expectation
thus held out, and lost tiie opportunity
of purchasing at a reduced price, it is
manifestly just that the plaintiff should
recover according to the value of the
thing pledged, when the defendant finally
failed in his promises to restore it." But
although such a transfer operates as a
pledge and not as a mortgage, it was
nevertheless held, that the legal title
passes to the pledgee, so as to entitle
the pledgor to bring his bill to redeem
and to have an account of the profits of
the stock. Hasbrouck v. Vandervoort,
4 Sandf. 74. See a;lso Hardv v. Jaudon,
1 Kob. 261 ; Diller v. Brubaker, 52 Penn.
498 ; Farwell v. Importers, &c. Bank, 90
N. Y. 483.

(d) Allen V. Dykers, 3 Hill (N. Y.),
593 ; s. c. 7 id. 497 ; The Hull of a New
Ship, Daveis, 199. See also, Langton v.
Horton, 1 Hare, 549.

(e) Upon this point, Walworth, C, re-
marked : " The authority to sell the stock
in question at the board of brokers, for
the payment of the debt, if such debt
was not paid when it became due, did
not authorize the pledgees, even if they
had retained the stock in their own
hands, to put the same up secretly. But
they should have put up the stock openly,
and offered it for sale to the highest bid-
der, at the board of brokers ; stating that
it was stock which had been pledged for
the security of this debt, and with au
thority to sell it at the board of tirokers
if the debt was not paid. In this way



CH. XI.] BAILMENT. * 118

It has, however, been held that a pledgee, if not forbidden by
the terms of the pledge, may exchange the collateral securities
held by him ; but he does this on his own responsibility for any
injury to the pledgor, (ee) And a recent decision in New York
holds, that, in the absence of any special agreement, the broker
in whose hands stocks pledged to him fall in value, must give
notice to the pledgor that he may increase his margin, before the
broker sells them, (e/)

* The pledgee may have his action of trover for the pledge * 118
against a third party who takes it from him, and recover
its full value, bcause he is responsible over to the pledgor, (/) but
in an action against one who derives title from the pledgor, he
can recover only the amount of his debt. (^) And the pledgor
retains sufficient property in the pledge to transfer it, subject to
the pledgee's right, to any buyer, who, after a tender of the
amount of the debt due, may maintain an action of trover against
the pledgee, (h) ^ Nor does such pledgee acquire an absolute title
simply by the failure of the pledgor to pay the debt ; there is no
forfeiture until the pledgee's rights are determined by what is
equivalent to a foreclosure, (z)

only the stock would be likely to bring been sold on his own account. Secret

its fair market value at the time it was sales, therefore, cannot be sustained un-

offered for sale. And in this way alone der such an agreement or authority."

could it be known that it was honestly It should be observ-ed, however, that Mr.

and fairly sold, and that it was not pur- Justice Vanderpoel, in the case of Wilson

chased in for tlie benefit of the pledgees v. Little, already cited, was inclined to

by some secret understanding between doubt the soundness of these views of

them and the purcliasers. It is a well- the learned Chancellor. He says . " In

known fact that shares of stock are con- Dykers v. Allen, 7 Hill (N. Y.), 498,

stantly sold at the board of brokers, \\^ahvorth, Chancellor, intimates or di-

which shares exist only in the imagina- rects, how stock, which is pledged, should

tion of the nominal buyers and sellers, be sold at the board of brokers. The

Such sales, as everybody knows, are not soundness of his views as to the mode of

legally binding upon either party. When selling does not, perhaps, come in ques-

a real sale, therefore, is to be made at tion here. Were it presented by this

the board of brokers, of shares of stock case, I should incline very strongly to

which have an actual existence, and the opinion, that this part of the learned

which have been pledged for the pay- Chancellor's judgment was uncalled for

ment of a del)t, with authority to sell by the case, and lias not, therefore, the

them at tliat board, the stock should be weight of authority."

specifically described at the time of such (ee) Girard Ins. Co. v. Marr, 46 Pa.

sale, as so many shares standing in the 504.

name of the pledgee, and sold on account [ef) Ritter v. Cushman, 7 Rob. 294;

of the pledgor; so that if a full price is Markham v. Jaudon, 41 N. Y. 235; Gillett

obtained for it on such sale, the ph^lgor v. Whiting, 120 N. Y. 402.

of the stock may know that he is entitled (/) Harker v. Dement, 9 Gill, 7.

to the benefit of the sale. For without (9) BrownoU v. Hawkins, 4 Barb. 491.



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