the right of redemption in a mortgage, in the act of executing it; or to surrender the right of redemption in a pledge, in the act of delivering it as a collateral security. Besides opening the door to oppression, stipu lations of this sort carried into effect, would wholly change the nature of the transaction, converting the mortgage into a deed and the pledge into a contract for property.1

A subsequent agreement made on equitable terms, waiving the right to redeem, may be enforced; on the same ground that a mortgagor may afterwards convey his equity of redemption."

3

§ 299. The proceeds of the pledge are to be applied first to the payment of the debt; that being satisfied, the balance belongs to the pledgor. Where the pledge produces no income, and it is sold by the pledgee, the proceeds applicable to the debt are fixed, by deducting from the sum received, the expenses incident to the sale, and the necessary expenses incurred in the preservation of the pledge. When the pledge consists of choses in action, and the pledgee endeavors to render them available by suit, he is entitled to recover the amount due upon them ;* recovering more than sufficient to satisfy his demand, he holds the balance in trust for the pledgor; i. c., the balance after defraying the expenses of collection.

5

There is every reason why the pledgee should be allowed his necessary expenses in keeping the pledge, or in rendering it available. Where he receives an indorsed note not yet due, as a collateral security, he is bound to have it duly protested, and to do those acts which will preserve the liability of the indorser; and there can be no reason why he should not be reimbursed the expenses incurred by him in so doing. For the same reason he ought to recover or be allowed the expenses of a suit upon the collateral. The pledge is delivered for the mutual benefit of the parties to the contract; and the collection, or the effort to collect the

252; Brownell v. Hawkins, 4 Barb., 491; Kimball v. Hildreth, 8 Allen (Mass.), 167; ante, § 250. In Lawrence v. Maxwell (53 N. Y., 19) it is held that an authority to transfer the stocks pledged at pleasure is inconsistent with a contract of bailment, and that a custom will not avail to work so great a change in the agreement.

1 2 Kent's Comm., 583.

2 Stevens v. Bell, 6 Mass., 339; see West v. Crary, 47 N. Y., 423; Hathaway v. Brayman, 42 N. Y., 322.

3 Code Louisiana, Art. 3134.

4 Dewey v. Bowman, 8 Cal., 145; Comstock v. Smith, 23 Maine, 202; Soulo v. White, 14 Maine, 436.

6 Treadwell v. Davis, 34 Cal., 601.

• Russell v. Hester, 10 Ala. R., 535; ante §§ 238–242.

collateral security is as much for the benefit of the debtor as it can be for the creditor. Besides, the creditor is legally entitled to recover and receive the face of his demand; and though it may be presumed that he willingly undertakes the personal trouble and care of the collection, it can hardly be inferred that he also assumes to pay the actual costs and disbursements of the prosecution; since that would be to cast upon him another man's burden.1

§ 300. The pledgee is bound to account for the income, profits or increase of the pledge. Where the pledge consists of stocks or securities bearing interest, he must account for the dividends or interest received thereon. As the title to the pledge does not pass, it is but a necessary conclusion, both of reason and law, that its fruits shall accrue to the owner; for it is the nature of property in all its forms to yield a revenue to its proprietor; lands, in the return of an annual rent; stocks, in the dividends which they yield; and notes and bonds in the interest which they bear as the regular fruitage of the year. On the same ground the bailee must account for the rental value or hire of chattels, where he gains a benefit from the use of them; and for the increase of domestic animals held in pledge. But he holds the income or increase as he does the pledge itself, to apply upon the debt."

§ 301. Where the pledgee converts the pledge to his own use, or where the mortgagee of real or personal estate appropriates the prop

1 Comstock v. Smith, supra; Foot v. Brown, 2 McLean, 369. It has been lately held that the creditor may bring suits on all the collaterals held by him and is to be allowed the costs and expenses paid by him in each suit, in account with his debtor. Plants &c. Co. v. Falvey, 20 Wis. R., 200; Hilton v. Waring, 7 Wis., 492; ante § 293, 242, 243.

2 Hasbrook v. Vandevoort, 4 Sandf. R., 74, 596; 9 N. Y., 153; Van Rensselaer v. Jewett, 5 Denio, 135; 2 N. Y., 135; Putnam v. Wyley, 8 John. R., 532.

* Houton v. Holliday, 1 Car. Law Rep., 87; Davenport v. Tarlton, 1 Marsh., 244; Ratcliff v. Vance, 2 Rep. Con. Ct., 239; Ross v. Norvell, 1 Wash., 14; Concklin v. Havens, 12 John. R., 314; Geron v. Geron, 15 Ala., 588; the law declared in these cases remains good, though the subject has ceased to exist with the system of slavery.

4

* All contracts to pay money, give a right to interest as damages, from the time when the principal became due. The interest is the civil fruit of the moneys due. The revenue derived from labor is called wages; that derived from stock or property by the person who manages or employs it, is called profit; that derived from money or debts due, is called interest; these are all of essentially the same nature, being the regular harvest or return of either labor or capital, which is the produce of labor. Reid v. Rensselaer Glass Factory, 3 Cowen, 393; S. C., 5 Cowen, 587; Smith's Wealth of Nations; Code Louisiana, Arts. 537, 540; Hume's History, Ch., 33; Williams v. Sherman, 7 Wend.,

erty as his own, the transaction operates as a payment, to the extent of the value of the property. If the pledge or the estate covered by the mortgage, be equal in value to the debt, the debt is paid.' Though a mortgage of real estate does not convey the title, it does enable the mortgagee who acquires possession after forfeiture, to hold the premises; and equity enables the mortgagor to redeem the property, by paying the debt for which it is held as a security; thus satisfying the debt and restoring the surplus to the owner.3 On redeeming, the mortgagee must ordinarily account for the net rents and profits; and a purchaser in good faith, not aware of any right to redeem, may be allowed his expenses for valuable improvements."

§ 302. Where a person delivers his property as a pledge for the payment of another man's debt, he is to be treated, it should seem, as standing in the situation of a surety; and if he were to be so considered in all respects, he would be entitled to call upon the creditor to proceed and enforce the debt against the debtor." For some purposes, it is quite certain that he is entitled to protection as a surety. If by a sale or in some other way the proceeds of the pledge are applied in payment of the debt, he is evidently entitled to any remedy lien or security held by the creditor against the debtor or his property; because up to the value of the pledge he stands as surety for the debt. In equity, if not at law, he has the right to reach any security or property of the debtor, held by the creditor, and have it applied upon the debt, or in satisfaction of hist demand against the debtor, after he has paid the debt. He is entitled to the creditor's place by substitution, and the creditor is not allowed to deprive him of that right; though not bound to active diligence, he

1 Case V.

Boughton, 11 Wend., 106; Morgan v. Plumb, 9 Wend., 287, 292. 2 Phyfe v. Riley, 15 Wend., 248; Chase v. Peck, 21 N. Y., 581, 586; Stoddard v. Hart, 23 N. Y., 556.

3 Henry v. Davis, 7 John. Ch., 40 ; 2 Cow., 324.

Bell v. Mayor &c. of N. Y., 10 Paige Ch., 49; Wetmore v. Roberts, 10 How. Pr., 51.

5 Mickles v. Dillaye, 17 N. Y., 80. There being no mistake in regard to the title, no allowance should be made for more than ordinary repairs; see Scott v. Guernsey, 48 N. Y., 106, 122.

6 King v. Baldwin, 2 John. Ch., 554; S. C. 17 John. R., 384; Strong v. W008ter, 6 Vt., 536.

7 Ingalls v. Morgan, 10 N. Y., 178; Eddy v. Traver, 6 Paige, 521.

* Gibbs v. Mennard, 6 Paige Ch., 258, 230; Hayes v. Ward, 4 John. Ch., 123; Ellsworth v. Lockwood, 42 N. Y., 89, 98.

9 Chester v. Bank of Kingston, 13 N. Y., 333; Mathews v. Aikin, 1 N. Y., 595; Lewis v. Palmer, 23 N. Y., 271.

is prohibited from doing any act prejudicial to the surety.' And where the surety or party standing in the place of a surety, tenders the expenses of active measures to collect, it may become the creditor's duty to enforce his demand against the principal debtor.2

§ 303. When a pledge is delivered to secure the performance of a contract, or to indemnify a surety, the pledgee has a right to retain it until the contract has been fulfilled, or until the surety has been discharged.3 The rights and liabilities of the parties are fixed by the terms of the contract; and nothing is more common than to take securities of this nature, intended as an indemnity against liability or to insure the fulfillment of a contract.1

§ 304. A creditor sometimes takes several securities for the same debt, and he cannot be compelled to yield up either until the debt is paid. On discounting a note, there is nothing to prevent a bank from taking a chose in action from the maker and a transfer of stock from the indorser, as collateral security for its payment. And though the original debt be secured by a contract of guaranty, the creditor may at any time take a further collateral security for its payment, without impairing the prior securities. Provided he does not extend the time of payment by a valid contract, or by necessary implication, the new security received as a collateral, does not affect the prior obligation." But the guarantor is discharged, where the creditor takes from the debtor at new note for the debt payable at a future day; thus extending the time of payment till the new note falls due.

The creditor receiving from his debtor the note of a third person, past due, as collateral security, is not at liberty to extend the time of payment by a new contract; it is with better reason his duty to use diligence to collect it." And where a creditor receives a note or draft on a

1 Schroeppell v. Shaw, 3 N. Y., 446; Warner v. Beardsley, 8 Wend., 194; Bangs v. Strong, 7 Hill, 250.

2 Black River Bank v. Page, 44 N. Y., 453.

3 Jewett v. Warren, 12 Mass., 300; West v. Green, 3 Mo., 219.

These cases relate to securities or pledges to indemnify an indorser; Seacord v. Miller, 13 N. Y., 551; Denny v. Palmer, 5 Ired. N. C. Law, 610, 625; Holland v. Turner, 10 Conn., 303; Walters v. Munroe, 17 Md., 154; Haskell v. Boardman, 8 Allen 38; 43 N. H., 557; 14 Wis., 380.

5 Chapman v. Clough, 6 Vt., 123.

6 Union Bank v. Laird, 2 Wheat., 290.

7 Remsen v. Graves, 41 N. Y., 471; Cary v. White, 52 N. Y., 138; Taylor v.

Allen, 36 Barb., 294; 39 Barb., 610; Halliday v. Hart, 30 N. Y., 474.

* Hart v. Hudson, 6 Duer, 294; Place v. McIlvain, 38 N. Y., 96.

9 Wakeman v. Gowdy, 10 Bosw., 208.

debt, without any agreement that it is received in payment, it is clearly his duty to take measures and have it properly protested.1

§ 305. When the debtor is the owner and holder of bonds, bills or notes made or drawn by other parties as business paper, his delivery of them as collateral security for the payment of his debt, has the same legal effect as the delivery of chattels; it is a pledge of his property. The transaction is perfectly simple and plain. The debt is the consideration for the contract of pledge.2

When the debtor is entrusted with bills or notes, drawn, accepted or indorsed for his accommodation without any restriction as to the use to be made of them, he may also pledge them as security for the payment of his debt; the transaction authorizes him to do so.3

When the debtor is entrusted with negotiable paper, bills and notes, drawn, accepted or indorsed for a special purpose, he has no right to transfer or use them for any other purpose; it is a breach of faith to do so; but since these instruments are negotiable, the party taking them and giving value for them before they are due, without any knowledge of the misuse or misappropriation, is allowed to hold and recover on them.' He is not allowed to recover on them, where he takes them after they are due; or where he does not give value for them."

When a party having the custody, as bailee or agent, of negotiable bills and notes, wrongfully transfers them as collateral security for his own existing debt, the transferee is not allowed to hold them as against the true owner: not being a purchaser for value, it is not equitable that he should in this way acquire another man's property. Paying value for the paper and taking it fairly, the law allows him to hold it; because it is not inequitable, while it subserves the general convenience.

§ 306. When an accommodation note is misappropriated, and delivered as a collateral security for indorsements to be made, and the same

1 Dayton v. Trull, 23 Wend., 345; Woodcock v. Bennett, 1 Cowen, 711; see Gibson v. Tobey, 53 Barb., 191.

2 Ante, § 222.

3

Agawam Bank v. Strever, 18 N. Y., 502; Seneca Co. Bank v. Neap, 3 N. Y., 442; Bank of Chenango v. Hyde, 4 Cowen, 567.

Ante, §§ 196, 197.

5 Chester v. Dorr, 41 N. Y., 279.

6 Lawrence v. Clark, 36 N. Y., 128.

7 Coddington v. Bay, 20 John, R., 637; Stalker v. McDonald, 6 Hill, 93; see cases where the same rule is held in regard to the title to stocks and lands: Weaver v. Barden, 49 N. Y., 286; Cary v. White, 52 N. Y., 138.

8 Park Bank v. Watson, 42 N. Y., 490; Boyd v. Cummings, 17 N. Y., 101; Brookman v. Metcalf, 32 N. Y., 591; Bank of N. Y. v. Vanderhorst, 32 N. Y, 553, 556.