held by him in that capacity, to secure the payment of his individual debt; the act is unlawful, and the transfer of the scrip standing in his name as trustee, carries with it notice of his want of authority.' The rule must be different where the owner permits his stocks to be transferred to another and held by him as the apparent owner, under a secret trust; because in this case the owner enables the trustee to appear with the title standing in his name, and to sell the stock as his own. And after he thus sells the stock or pledges it for an advance of money, the honest purchaser or pledgee is protected, while the party who takes the stock in pledge or purchases it in bad faith, or with knowledge of the facts, takes subject to the owner's title. The same rule applies where an agent to sell, is entrusted with the title; he has the power to sell in violation of his instructions.3 And since a sale or transfer of stock is usually made on the faith of the apparent title, the owner rather than an innocent purchaser or pledgee for present advances, should bear the consequences of the agent's bad faith. Certainly we find few cases in our reports where, under these circumstances, the owner ventures to prosecute his title as against such purchasers; and many cases where he pursues his remedy against his defaulting agent.*

3

2

§ 193. In the transfer of choses in action or securities, not negotiable, the rule is that the purchaser or assignee takes them subject to all defences, legal and equitable, existing in favor of the original debtor or any prior party; in other words, the assignee takes the exact interest of his assignor; and a second assignee succeeds to all the rights and becomes subject to all the disabilities of his assignor, to all the defences existing against him. This being the general rule applicable to choses in action, that class of cases will hardly be much extended, in which the pledgee or purchaser is held to acquire the title discharged of a secret trust a class which stand upon the well established principle, that innocent purchasers for value from an apparent owner, clothed with the legal title, are to be protected. Sales and pledges of goods by factors

6

2 Crocker v. Crocker, 31 N. Y., 507; 28 How. Pr., 583 n; 17 How. Pr., 504; see Anderson v. Nicholas, 28 N. Y., 600; and Calais Steamboat Co. v. Van Pelt, 2 Black., 372.

3 Parsons v. Martin, 11 Gray (Mass.), 111; as was done in Clark v. Meigs, 10 Bosw., 337.

4 Markham v. Jaudon, 41 N. Y., 235; Baker v. Drake, 53 N. Y., 211.

5 Bush v. Lathrop, 22 N. Y., 535. Latent equities? See Reeves v. Kimball, 40 N. Y., 299.

• Mason v. Lord, 40 N. Y., 476, 487.

1

entrusted with documentary evidences of title, are thus protected; and for a similar reason, a transfer or pledge of stocks, made by an agent entrusted with the title, for money advanced upon them, is upheld in favor of a party thus induced to act upon the written evidence of title.2 It is but just that the negligent or careless owner should be left to his remedy against his unfaithful agent.3 Third parties acting on the indicia of title furnished by the true owner, should not be deprived of securities so taken in good faith.

§ 194. The general principle is that the person making a pledge can convey to the pledgee no greater interest in the thing pledged than he himself possesses. The exceptions to this rule only serve to make it plain. E. g., at common law a factor may deliver the goods entrusted to him, to a third person as his agent, with notice of and in order to preserve his lien; this being a continuance of the factor's possession. But the factor cannot by the rule of the common law pledge the goods of his principal, even to the extent of his lien; he cannot transfer them to a third person so as to create a privity between him and the owner. Under the law as now modified by statute, the factor having the title vested in him, may pledge the goods for advances made in good faith, on the strength of the written or documentary evidence of title. Under such circumstances the factor is deemed the true owner, and his pledge of the goods for advances is held valid in favor of the party making a loan on the goods, and taking them in possession as a security: that is to say, the factor is deemed the true owner where he has written evidence of the title, and the purchaser or pledgee deals with him in the honest belief that he is the true owner."

§ 195. The statute specifies the circumstances under which the apparent owner is to be deemed the true owner. 1. The party in whose

1 EDWARDS on Factors and Brokers, §§ 45 to 57.

2 McNeil v. The Tenth National Bank, 46 N. Y., 325; S. C., 55 Barb., 59.

3 Stenton v. Jerome, 54 N. Y., 480.

Urquhart v. McIver, 4 John. R., 103; Warner v. Martin, 11 How. U. Sag 209; Lanssat v. Lippincott, 6 Serg. & Rawle, 386.

5 Rodrigues v. Hefferman, 5 John. Ch., 417, 429.

6 Sally v. Rathbone, 2 Maule & Selw., 298; Moffatt v. Wood, Selden's Notes, Nos. 5, 14; Kennedy v. Strong, 14 John. R., 128; Buckley v. Packard, 20 John. R., 422; Walther v. Wetmore, 1 E. D. Smith, 722-25; Benito v. Mosquera, 2 Bosw., 401, 427; this case overruled on another point in Cartwright v. Wilmerding, 24 N. Y., 521.

7 Cartwright v. Wilmerding, supra.

8 Pegram v. Carson, 10 Bosw., 505.

Stevens v. Wilson, 3 Denio, 472; 6 Hill, 512.

name any merchandise is shipped with the owner's consent.' 2. The consignee having the bill of lading making the goods deliverable to him. or to his order.2 3. The party holding the custom-house permit, indicating ownership, and authorizing a landing of the goods from the importing ship.3 4. The party holding the warehouseman's receipt, an evidence of title, which may be transferred by its delivery with an order thereon for the goods, and with an authority to make the withdrawal entry at the custom-house. The object of the statute is to protect persons dealing in good faith with apparent owners, and it specifies these several evidences of title as documents on which it shall be safe to act; acting on which in good faith, the purchaser or pledgee is protected.5 Mere possession by a factor does not give him the power to pledge or sell his principal's goods. Possession for the purpose of sale, enables him to dispose of the goods, and will usually enable him to pledge them for advances. It will certainly enable him to store the goods and take a receipt for them, and thereon procure advances.

§196. We have still another exception to the general rule, growing out of the peculiar qualities of commercial or negotiable paper. A note payable to bearer, or to order and indorsed by the payee in blank, so that it is transferable by delivery, may be transferred or pledged for present advances, at any time before it is due, by a party having merely the custody of the note. The same is true of a draft or bill of exchange. The pledgee or transferee taking the same for value, acquires the title and may recover on the instrument.3

The pledgee is protected under the same circumstances and on the same principle, as a purchaser of the paper. Where the instrument is fraudulently diverted from the purpose for which it was made, or delivered in fraud of the owner as a collateral security, the transferee will only acquire the title and the right to recover on the paper where he parts with value when he takes it.10 He is to be protected as an honest

1 EDWARDS on Factors and Brokers, §§ 37-44.

2 Idem, §§ 45-53.

Idem, § 54.

• Idem, § 55.

5 Dows v. Greene, 24 N. Y., 638; 2 Bosw., 402, 429; Allen v. Williams, 12 Pick., 297; Mottram v. Heyer, 5 Denio, 629; Waldron v. Romaine, 22 N. Y., 368. 6 Nickerson v. Darrow, 5 Allen (Mass.), 419; Cook v. Adams, 1 Bosw., 497. 7 Pegram v. Carson, 10 Bosw., 505.

• Bank of Chenango v. Hyde, 4 Cowen, 567; Coddington v. Bay, 20 John. R., 637.

9 Bank of N. Y. v. Vanderhorst, 32 N. Y., 553, 557; Brookman v. Metcalf, 32 591.

N Y.,

10 Coddington v. Bay, supra; Stalker v. McDonald, 6 Hill, 93.

holder for value; that is, where he has advanced money on the strength of it, or incurred some obligation, or surrendered some security, or entered into some new agreement giving time, as a consideration for the paper. Some of the States go farther and permit the pledgee to hold negotiable paper, railroad bonds payable to bearer, received in good faith on a pre-existing debt-an extension of favor to this species of security beyond what equity seems to call for.

§ 197. The favor shown to negotiable paper is of long standing; it is actually treated as a species of currency. Chief Justice Eyre: "For the purpose of rendering bills of exchange negotiable, the right of property in them passes with the bills. Every holder with the bills takes the property, and his title is stamped on the bills themselves. The property and the possession are inseparable. This was necessary to render them negotiable; and in this respect they differ essentially from goods, of which the property and possession may be in different persons. The property passing with the possession, it is admitted that a banker, who receives indorsed bills from his customer, to be got when due and carried to his account, may discount or sell them; why may he not pledge them? Either is a breach of confidence reposed in him, and he may sell, because the property has been entrusted to him; and he may pledge for the same reason; for he who has the property has a disposing power, and the law has not limited it to be used in any particular manner." 3 The justice was speaking of a pledge made for present advances; and it is still quite clear that the pledgee receiving bills or notes in pledge at the time the debt is contracted, may retain them as a collateral security; he is to be protected as much as a purchaser for value.*

§ 198. One who has an interest in goods for life or for years, has a present right of property in them, and may pledge them, but only to the

1 EDWARDS on Bills and Notes, 319-324, 633-691; 1 Parsons on Bills and Notes, 218-228.

2 Colver v. Benedict, 13 Gray (Mass.), 7.

3 Collins v. Martin, 1 Bos. & Pull., 648.

4 Park Bank v. Watson, 42 N. Y., 490; Miller v. Race, 1 Burr. R., 452; Grant v. Vaughan, 3 Burr. R., 1526; Peacock v. Rhodes, Doug. R., 633; Lawson v. Weston, 4. Esp. N. P. R., 56. A surrender of securities is a parting with value, and enables the pledgee to hold the paper. Chrysler v. Renois, 43 N. Y. 200; Pratt v. Coman, 37 N. Y., 440. Merely taking the paper as a pledge on a prior debt, does not enable the pledgee to hold and recover on the paper. Lawrence v. Clark, 36 N. Y., 128. The party taking must act upon the security taken in pledge, in order to hold as pledgee for value. Taft v. Chapman, 50 N. Y., 445 ; and he must take without notice, that is, in good faith and for value: Porter v. Parks, 49 N. Y., 564; and the original debt must be legal: Richardson v. Crandall, 48 N. Y., 348.

extent of his interest.' Having possession of the goods, with a mere lien upon them, such as the pledgee himself posseses, he cannot rightfully sell them or again pledge them, separate from the debt on which he holds them as collateral security. He cannot divorce the pledge from the debt, which it is given to secure; but he may transfer the debt and give to the assignee the benefit of the pledge, the security for its payment.2 By selling or transferring the things pledged separate from the debt, unless the sale is made in due form by way of foreclosure, the pledgee renders himself liable for a conversion. He departs from his contract; hé puts it out of his power to restore the pledge on payment of his debt-a thing which he cannot do with impunity. He has the power to separate the pledge from the debt, and it has been held that he has an interest capable of sale;* on the analogy claimed to exist between his interest and that of a mortgagor of goods still in possession. But there is this difference between the two interests; the mortgagor sells, on a condition; and the pledgor does not sell at all; the mortgagor retains the possession by the terms of the instrument, until a default is made in the payment; and the pledgee as against his debtor has but a mere lien upon the goods, a right to detain them till his debt is paid, with a final right to foreclose the lien; his interest in the goods is collateral to, and dependent upon the debt. A sale or transfer of the debt will ordinarily draw after it a collateral security; but will a sale of the collateral draw after it the debt, especially where the debt largely exceeds the value of the things pledged? § 199. A mere equity of redemption under a chattel mortgage cannot be attached or sold under an execution." And as a lien is not the subject of a sale, the pledgee of goods cannot separate them from the debt

8

1 Howe v. Parker, 2 T. R., 376.

Chapman v. Brooks, 31 N. Y., 75; Lewis v. Mott, 36 N. Y., 395, 401.

6

3 Stearns v. Marsh, 4 Denio, 227, 232; Felt v. Hege, 23 How. Pr., 359, 362. The last paragraph in the opinion, badly printed; see also Stenton v. Jérome, 54 N. Y., 480.

4 Bullard v. Billings, 2 Verm., 309; Saul v. Kruger, 9 Hów. Pr., 569, 571; and see Whitaker v. Sumner, 20 Pick., 399, where the debt was sold without the pledge. In Weaver v. Danby, 42 Barb. 411, a manufacturer of timber furnished with funds to purchase, and entitled to receive so much a foot on delivery, was held to have an interest in the lumber liable to sale on execution. The purchaser under a contract for real estate has no such interest. Griffin v. Spencer, 6 Hill, 525; 5 Selden, 45; and see Herring v. Hoppock, 15 N. Y., 409. 5 Merritt v. Bartholick, 36 N. Y., 44.

6 Ante, $185.

7 Badlam v. Tucker, 1 Pick., 399; Champlin v. Johnson, 39 Barb., 606. The interest of the mortgagor, the conditions of the mortgage being unbroken, may be sold; Hamil v. Gillespie, 48 N. Y., 556.

• McCombie v. Davies, 7 East, 5; Daubigny v. Duval, 6 T. R., 604.