Appearing as a stockholder on the books of the corporation, the inspectors are not at liberty to inquire whether the stock has been hypothecated. A different rule has been adopted by statute in this State, in respect to the stock of moneyed corporations; in these no one is allowed to vote on hypothecated stock, or stock pledged as a collateral security." The relation of the parties is not otherwise affected by the pledge."

§ 220. A direct transfer of the title to a security or chose in action, is perfectly consistent with a contract of pledge; and will be so ccnsidered where the whole transaction shews that the transfer was intended as a security, and does not amount to a mortgage or a sale. In many cases it is quite important that the holder should be invested with the title; and in some cases it is essential that he should hold the title in order to reap the benefits of the security; e. g., where a policy of insurance against loss by fire is assigned as collateral security for the payment of a sum loaned on bond and mortgage, the assignment of the policy is necessary to give the mortgagee the protection of the policy; and the custom is for the holder of the bond and mortgage either to take a formal assignment of the policy, with the consent of the insurer, or to have an entry made upon the policy making the loss, if any shall happen, payable directly to the holder of the mortgage.5

§ 221. There is nothing to prevent the owner from pledging an existing reversionary interest in chattels or securities; c. g., a consignee who procures advances on a consignment, by depositing the bill of lading with the party making the advance, does not thereby preclude himself from making a further pledge of the same goods; the first pledge being for an amount which does not exhaust their value. The second pledge is rendered effectual by a contract pledging the goods, with an order on the first pledgee for the balance after paying the amount due him; his assent to the order will be sufficient." In like manner, where

1 Matter of Cecil, 36 How. Pr., 477.

22 R. S., 524, fifth ed.: prima facie the transfer books shew who are the shareholders and entitled to vote on the stock. See also Revised Statutes of U. S., §§ 5144, 5147, pages 1000, 1001; Magruder v. Colston, 44 Md., 349; 15 Albany Law J., 389.

3 Butterworth, Receiver, v. Kennedy, 5 Bosw., 143, 146.

4 M'Lean v. Walker, 10 John. R., 471; Campbell v. Parker, 9 Bosw., Dewey v. Bowman, 8 Cala., 145.

322;

The mortgagee and his assignee have an insurable interest in the premises covered by the mortgage. See Shearman v. Niagara Fire Ins. Co., 46 N. Y., 526; Grosvenor v. Atlantic Fire Ins. Co., 17 N. Y., 391; Buffalo Steam Engine Works v. Sun Mutual Ins. Co., 17 N. Y., 401.

6 Portalis v. Telley, 5 L. R. Eq., 140; 37 L. J. Chanc., 139; 16 W. R., 17 L. T. N. S., 344.

503;

stocks are held in pledge by a bank for a loan of money, there is nothing to prevent the owner from making a further pledge of them to the bank for additional advances, by a verbal contract. The existing situation dispenses with the necessity of any formal transfer.'

A bond and mortgage may be transferred as a collateral security, without making a formal written assignment of them; that is to say, by delivering them and receiving advances upon them. After that a written assignment of the securities to a third party, will convey the title subject to the advances which have been made upon them. A delivery or transfer of the mortgage separate from the bond, amounts to nothing; since the mortgage is only a collateral to the bond debt it is given to secure. A sale of the pledge, a chose in action, to a bona fide purchaser for value, is so far effectual, that the pledgor must tender the amount of the original debt to the purchaser."

3

§ 222. Negotiable notes, bills of exchange and bonds issued by government or by private corporations in a negotiable form, are usually pledged as collateral security, by a delivery of the instrument so indorsed, where that is necessary, as to vest the title in the pledgee. And the circumstance that the title is in form transferred to the pledgee, does not materially affect the contract of pledge; the pledgee takes the title in trust, to sell the bonds, they being usually bought and sold like stocks, and to collect the negotiable notes or bills when they become due, and apply the proceeds on the debt to secure which they were given. The contract of pledge may be valid and effectual, where the notes or bills are not properly indorsed to the pledgee; the paper being delivered as a security. The trustee has the right to collect the amount due on the security, in order that he may properly execute the trust.?

The bonds of a state or of a corporation, issued under the authority of law and made payable to bearer, are negotiable in such a sense that the

1 Van Blarcom v. The Broadway Bank, 37 N. Y., 540; see Brown v. Warren, 43 N. H., 430; and also Sanders v. Davis, 13 B. Mon. (Ky.), 432.

Mersereau,

2 A mortgage may be assigned by a mere delivery; Runyon v. 11 John. R., 534; Sweet v. Van Wyck, 3 Barb. Ch., 647; Haskins v. Kelly, 1 Robt., 160, 171, and cases there cited.

3 Merritt v. Bartholick, 44 N. Y., 44.

Tolty v. The Freedman's Saving & Trust Co., 15 Albany Law Journal of Feb. 17, 1877, page 120.

Wheeler v. Newbold, 16 N. Y., 392.

6 Nelson v.

Wellington, 5 Bosw., 178, 187; Nelson v. Eaton, 26 N. Y., 410; as to effect of pledge in due form see ante § § 196, 197; Marine Bank v. Vail, 6 Bosw. 421; Brainard v. N. Y. & H. R. R. Co., 25 N. Y., 496.

7 Flagg v. Munger, 5 Seld., 9 N. Y., 483, 492.

purchaser takes the title by delivery with the rights of a bona fide holder. He is entitled to hold them, where he purchases them, or makes advances upon them in good faith, and becomes the actual holder of them. The same rule must apply where bonds or stocks or coupons are left and issued in such a form that they will pass from hand to hand by delivery; on the other hand, where they do not pass as negotiable paper the pledgee will only acquire the interest of the pledgor in the security.3

§ 223. Where a pledge is fairly made, the pledgee does not lose his lien by permitting the owner to take and use the property for a special purpose; as where the captain of a ship pledged his chronometer and was permitted to use it for a voyage; or where the purchaser of personal property delivers it as security to a person who becomes his surety for the purchase money, and he permits the purchaser to use it temporarily. The pledgee must retain the possession; he need not retain the actual custody of the property, in order to preserve his lien. E. g., where the pledgee of a bond delivers it to the pledgor to get and return stock in exchange for it, he does not part with his title or possession; he may therefore maintain the action of trover against the pledgor for the bond; he takes the property as an agent or special bailee, subject to the order of the pledgee, and in subordination to his special property.7

The general rule is, that the possession must be taken and retained in order to create and continue the pledge. The rule is properly enforced with some strictness in favor of creditors and third parties; the same reasons require the possession to uphold the lien, which apply where a bailee holds a lien on chattels for work and services.

1 Assumed in State of Illinois v. Delafield, 8 Paige, 527; 8. C., 2 Hill, 159 177; Fisher v. The Morris Canal & Banking Co., 3 Amer. Law Reg., 423; Bank of Rome v. Village of Rome, 19 N. Y., 20.

2 Birdsall v. Russell, 29 N. Y., 220. He cannot take as bona fide holder, where he takes with notice. Starin v. Town of Genoa, 23 N. Y., 439.

3 Culver v. Benedict, 13 Gray, 7; Hodges v. Shuler, 24 Barb., 68; S. C., 22

N. Y., 114; Gorgier v. Mieville, 3 B. & C., 45; Lang v. Smyth, 7 Bing., 284.

Reeves v. Capper, 5 Bing. N. C., 136; 47 Ill., 53.

Ferguson v. Union Furnace Co., 9 Wend., 345; treated as a mortgage.

Hays v. Riddle, 1 Sand., 248.

White v. Platt, 5 Denio, 269; Way v. Davidson, 12 Gray (Mass.), 465; Coleman v. Shelton, 2 McCord (S. C.) Ch., 123; Cooper v. Ray, 47 Ill., 53; Hutton v. Arnett, 51 Ill., 93; Thayer v. Dwight, 104 Mass., 254.

* Walker v. Staples, 5 Allen (Mass.), 34. Bill of sale given of a carryall and chaise as a security, held a pledge; and being given back by the pledges to the pledgor to let on hire for his own advantage, with care, it was held that the pledgee thereby lost his lien. Kimball v. Hildreth, 8 Allen (Mass.),167. A bill of

§ 224. Relation of Pledge to Original Contract. A contract of pledge is like a contract of suretyship; it bears much the same relation to the orignial debt. The original debt is the basis of the new contract; it is the consideration for the contract of pledge.' The original debt being illegal, the law will not enforce a contract of surety ship to secure its payment; and for the same reason it cannot enforce a contract of pledge made to secure an illegal debt. In other words, the law must leave the parties where it finds them; since it cannot give to either party an affirmative relief where the pledge is made at the time and enters into the original, the illegal contract. The party paying or advancing money or property under an illegal contract, is not allowed to recover it back; that is, the law does not interfere to compel a restoration.*

§ 225. The law does not aid a party in the execution of an illegal contract, and it does not uphold a collateral agreement designed to insure its performance. On this account the assignment of an existing valid bond and mortgage, made at the same time and to secure the fulfilment of an illegal contract, does not transfer the title; and the assignee will not be permitted to reap the advantages of the collateral security by a foreclosure. For the same reason, a new and subsequent contract which stipulates for the performance of the illegal agreement, is equally illegal and void; it is void when it is based upon or seeks to

5

sale of a watch, amounting to a pledge of it; pledgee redelivered the watch, and no explanation being given, the court held this a waiver of the lien: that the pledgee by relinquishing the possession waives or loses his lien. Beeman v. Lawton, 37 Maine, 543; the possession must be taken and retained in order to create and continue a pledge; Russell v. Fillmore, 15 Vt., 130, 135. Treadwell v. Davis, 34 Cal., 601; Parshall v. Eggart, 52 Barb., 367; agreed upon, it may be acquired afterwards; S. C., 54 N. Y., 18. Where the pledge is immediately returned to the pledgor, and he is permitted to use the same (horse) as his own property, an attaching creditor will hold the property. Barrett v. Cole, 4 Jones (N. C.) Law, 40. And a bona fide purchaser from the pledgor in possession will hold the property; Smith v. Sasser, 4 Jones Law (N. C.), 43. Held also in Bodenhamer v. Newsom, 5 Jones Law (N. C.) that the pledgee loses his lien by giving up the property to the pledgor for a special purpose.

1 Jewett v. Warren, 12 Mass., 300.

2 Swift v.

Beers, 3 Denio, 70; Tyler v. Yates, 3 Barb.,

222.

3 King v. Green, 6 Allen, (Mass.), 139. Held in respect to a watch given in pledge for the hire of a horse for a pleasure drive on a Sunday. The debt is illegal and not collectible: Way v. Foster, 1 Allen, 408.

4 Ball v. Gilbert, 12 Met., 397; Sampson v. Shaw, Exr., 101 Mass., 145. In this case the Court held a contract to create a corner in a certain stock illegal, and that a party to the contract whose funds had been used in the transaction with his assent, could not recover them back.

5 De Witt v. Brisbane, 16 N. Y., 508; Schroeppel v. Corning, 5 Denio, 236; Johnson v. Bush, 3 Barb. Ch., 207; assumed in Kellogg v. Adams, 39 N. Y., 28.

fulfill any part of the original contract;1 and neither party can obtain the aid of a court in its enforcement. The law cannot shew any more favor to the auxiliary than it does to the principal contract; and it cannot suffer itself to be evaded or subverted in any manner.2

§ 226. When a contract is not illegal in substance, it is not treated as illegal and corrupt simply because it provides for a prohibited mode of payment, or embraces an illegal stipulation in favor of one party, in no way beneficial to the other. E. g., a deposit of money in a bank creates a legal contract; and though the bank credit the amount in a pass-book, illegally making it payable at a future day, the depositor may recover back the money. So where a bank of this state borrows money of a foreign company and gives notes therefor, illegal by our law because payable on time, and gives a pledge of stocks to secure the payment, the lender, innocent of any intent to evade the law, may hold the pledge.* So where a sale of stocks, legal in itself, is made to a banking association, and the seller receives therefor notes illegal simply because payable on time, he may recover the value of the stocks; not being in pari delicto, he may recover on an implied undertaking. The mode of payment is not of the essence of the contract; it is more like a collateral stipulation-a dead limb to be pruned away that the tree may live.

§ 227. Money paid and securities given under extortionate contracts may be recovered back, or the contract held void, as the case may require; including in this class of contracts pledges illegally taken by a public officer under color of his office. But when the partics meet on equal terms, we assume it as quite clear on general principles, that a party pledging goods as security for the performance of an illegal contract, the pledge being made at the time and entering into the terms of the contract, will not be assisted to recover back the pledge. The position of the defendant is one of vantage, only because the law will not

1 Gray v. Hook, 4 N. Y., 449.

2 Leavitt v. Palmer, 3 N. Y., 19; discussed and distinguished in Curtis v. Leavitt, 15 N. Y., 9, 101, 231; 17 N. Y., 521; Sackett's Harbor Bank v. Codd, 18 N. Y., 240. The first of these cases involve the character of our banking associations and the effect of our restraining laws; they do not depart from the familiar rule stated in the text.

3 White v. Franklin Bank, 22 Pick., 181.

4 Curtis v. Leavitt, 15 N. Y., 9.

Tracy v. Talmage, 14 N. Y., 162-218, and the cases there reviewed by Judges SELDEN and COMSTOCK; Oneida Bank v. Ontario Bank, 21 N. Y., 490; City Bank of N. H. v. Perkins, 29 N. Y., 554.

6 Osborn v. Robbins, 36 N. Y., 365.

Richardson v. Crandall, 30 How. Pr., 134; 47 Barb., 335; S. C., 48 N. Y.,