are made in good faith on the strength of it, the party so taking it is to be treated as a bona fide holder for value in the commercial sense-a holder for value to the extent of the liability assumed.' So where goods are sold on an agreement that the notes of third parties are to be delivered as collateral for the purchase money, the seller receiving them presently or within a short time after the goods are delivered, holds them for value.2 And he is entitled to recover on paper of this kind, wherever he has parted with value in any form on taking it, or assumed any new liability, or omitted any act affecting his rights on the strength of the paper.3

§ 307. The general rule that the party selling or transferring property, can convey no better title than he himself possesses, applies to mortgages and pledges. The owner cannot be divested of his property without his consent, either expressed or implied; and hence as a rule the pledgee takes no greater interest than the pledgor possessed; and no greater interest than the terms of the contract do actually convey."

It is an exception to the general rule, which allows a purchaser of chattels in good faith from a party who acquired them by a fraudulent purchase, to hold the property as against the defrauded seller; an exception based upon this consideration, that as between two innocent persons, he who has parted with the possession of his goods must yield to a bona fide purchaser from the party to whom the possession is confided, with the indicia of title. And the same exception is enforced in favor of a party making advances on the goods, on a transfer of the title as a collateral security; and in favor of a party making a loan or discount, on a transfer of stocks made by a person invested with the title." The equitable ground supporting this exception, does not extend to the case of a pledge received as security for an antecedent debt; nor does it ex

1 Williams v. Smith, 2 Hill, 301; Merritt v. Northern R. R. Co., 12 Barb., 605; Watson v. Cabot Bank, 5 Sandf., 423; Case v. Mechanics' Bank. Association, 4 N. Y., 166; Smith v. Mulock, 1 Robt., 569.

2 Fenly v. Pritchard, 2 Sandf., 151.

3 White v. Springfield Bank, 3 Sandf., 222; Youngs v. Lee, 13 N. Y., 551; Brown v. Leavitt, 31 N. Y., 113; Meads v. Merchants' Bank, 25 N. Y., 143; Bank of St. Albans, 23 Wend., 311.

Cleveland v. State Bank, 16 Ohio St., 335.

Campbell v. Parker, 9 Bosw., 322.

6 Luckey v. Gannon, 1 Sweeny, 12.

7 Mowrey v. Walsh, 8 Cowen, 238; Rowley v. Bigelow, 12 Pick., 307; Ash v. Putman, 1 Hill R., 302; Dows v. Greene, 24 N. Y., 638, 644; Lacker v Rhoades, 45 Barb., 499.

Winne v. McDonald, 5 Bosw., 130; 39 N. Y., 233. 9 McNeil v. Tenth National Bank, 46 N. Y., 325.

tend to a case where the transferee or party dealing with the apparent owner, has knowledge of the title.' The equity arises only in favor of a purchaser, in good faith, for value; or in favor of one who comes into substantially the same position as a purchaser, for a valuable considera

tion.

§ 308. Where promissory notes are delivered as collateral security for the payment of a usurious loan, which is declared illegal and void by the statute, the lender cannot recover upon them against the borrower; nor can the party to whom he transfers them, collect and apply the proceeds on an existing debt. As collateral paper, the notes must abide the fate of the principal debt to secure which they were delivered. The transfer as security for a debt created in violation of law, is itself illegal; the collateral partakes of the nature of the principal contract; hence the party taking cannot hold the pledge, as against the pledgor." But it is well settled that a stranger to the contract cannot insist upon the invalidity of a usurious security; it follows that the makers of a valid security, delivered as collateral on a usurious loan, cannot interpose a defence on the ground of usury, when sued on the valid collateral; not being parties or privies, they cannot litigate the validity of the transfer.5

§ 309. Whatever discharges and satisfies the original debt, necessarily releases all accessary obligations; all collaterals and contracts of suretyship. A discharge of the debtor as a bankrupt or as an insolvent, does not have that effect; it does not release a surety bound for its payment, nor can it have any effect upon the contract of pledge. The assignee of the insolvent or bankrupt takes subject to the lien; and he has the right to take back the pledge on the same terms as the debtor might have done. That is to say, the pledge being honestly made and not coming within the prohibition of the statute, it creates a vested interest in the

1 Reeves v. Smith, 1 La. Ann. R., 379; Porter v. Parks, 49 N. Y., 564. ? Bell v. Lent, 24 Wend., 230.

3 Fish v. De Wolf, 4 Bosw., 573; Gaither v. Farmers' and Mechanics' Bank, 2 Peters' U. S. R., 37; Ramsdell v. Morgan, 16 Wend., 574; Keutgen v. Parks, 1 Sandf., 60.

* Bullard v. Raynor, 30 N. Y., 197; Billington v. Wagoner, 33 N. Y., 31. 6 Williams v. Tilt, 36 N. Y., 319.

6 Bowery Savings Bank v. Clinton, 2 Sandf., 113; Storm v. Waddell, 2 Sandf. Ch. R., 494, 525; see Brown v. Nichols, 42 N. Y., 26, as to the lien acquired upon equitable assets by suit, Davenport v. Kelly, 42 N. Y., 193; and as to the effect of a discharge, see Ocean National Bank v. Olcott, 46 N. Y., 12.

7 A preference may be void under the Bankrupt Act, and valid under the State law. Dodge v. Sheldon, 6 Hill, 9; Seaman v. Stoughton, 3 Barb. Ch. R.,

pledgee, so that only a right to redeem vests in the assignee. The discharge under the present bankrupt law is quite absolute; it releases the bankrupt from all provable debts, claims, liabilities and demands; it extinguishes them as subsisting causes of action. It does this without assuming to invalidate any collateral security; it gives the debtor a personal release, more efficient and much like the discharge granted to an insolvent under the State law.1

The debtor's incapacity to bind himself, from infancy or from coverture under the common law, does not avail a surety; and on the same ground, the mere invalidity of the original debt, constituting a defence personal to the debtor, does not invalidate a contract of pledge, or a guaranty of payment made by a party competent to contract." The new engagement is not so based upon the original, that a defence on the ground of a want of legal capacity to incur the debt, will avail to annul the collateral contract.3

4

§ 310. A creditor holding his debtor's property in any manner as a security for the payment of his demand, and a contract of suretyship therefor, is obliged in equity to resort to the property, as the primary fund for the satisfaction of the debt; because it is just that the debtor's property should be first applied in the payment of his debts. In taking collateral securities from the debtor, the creditor acts for the benefit of the surety; and he is bound, after taking them, to hold them for the surety's protection. And if he fails in this duty, he discharges the surety; but it is adjudged that an indorser is not a surety in such a sense that he is entitled to the protection of this rule. And it is not under all circumstances the creditor's duty to exhaust the fund in his hands before proceeding against the surety.?

1 Tooker v. Bennett, 3 Caines' R., 4; Moore v. Paine, 12 Wend., 123; 126; Ellsworth v. Caldwell, 27 How. Pr., 188; Ford v. Andrews, 9 Wend., 312; Cook v. Whipple, 55 N. Y., 150; Wooden v. Frazee, 6 J. & S., 190.

2 The pledge by an infant may be void; but it is not void on the ground that the original debt is invalid: Kimball v. Newell, 7 Hill, 116; EDWARDS on Bills and Notes, 218; and 20 Pick., 467; 30 Vt., 122; 7 N. H.,368; Davis V. Statts, 43 Ind., 103; Baldwin v. Van Deusen, 37 N. Y., 487.

2 Connecticut M. Life Ins. Co. v. The Cleveland C. C. R. R. Co., 41 Barb., 9; Mann v. Eckford's Exors., 15 Wend., 502.

+ Vartie v. Underwood, 18 Barb., 561. Here a mortgage covered the principal debtor's and also his surety's property; held that the proceeds of the debtor's property must be first applied: Wright v. Austin 56 Barb., 13; 50 N. Y., 369; 56 N. Y., 494.

5 Hayes v. Ward, 4 John. Ch., 123; 42 N. Y., 89, 98 ; 28 N. Y., 271; Ingalls v. Morgan, 10 N. Y., 178.

6 Pitts v. Congdon, 2 N. Y., 352.

▾ Loud v. Sergeant, 1 Edw. Ch., 164.

§ 311. The pledgee is not bound to restore the pledge where it has been lost without any fault on his part; but where he refuses to return the pledge on a tender of the debt due, and retains it until it becomes worthless, he must account for its value at the time of the tender; being equal in value to the debt at that time, he is obliged to accept it in full satisfaction. His detention of the property being wrongful, the law holds him answerable for it at all events, during the unlawful detention; a rule of liability of which he cannot complain, since his refusal to restore the property is an act of appropriation which renders him liable for its value.2

§ 312. Remedies. A right of property includes the remedies given for its violation, and the means furnished by the law for its protection; and hence our investigations constantly branch out into the practical vindication of acknowledged rights. Having followed this method thus far, but little remains to be said under this division of the subject. For a violation, by the pledgee, of the residuary or general right of property remaining in the pledgor, the latter has an immediate remedy; by a suit on the contract, or by an action based on the tortious act. He is entitled to recover either the property, or the damages he has sustained, or his interest in the pledge.3 Under ordinary circumstances his remedy is by an action at law; and the action is to be chosen with reference to the existing relations of the parties. The bailee's lien entitles him to retain the property; but where he attorns to another party claiming the title, he is not allowed to hold the property under pretence of a lien upon it."

§ 313. After the debt secured by a chattel mortgage becomes due, the legal title to the chattels vests in the mortgagee; and after this, the mortgagor's only remedy is by a bill in equity to redeem an action in which he is entitled to have an account of the rents, profits, and income derived from the property. The pledgor has the same remedy, where he has a right to demand a retransfer of the security, stocks, and an

1 Griswold v. Jackson, 2 Edw. Ch., 461; 1 Robt., 160; Hope v. Lawrence, 1 Hun., 317.

2 Coggs v. Bernard, 2 Ld. Raym., 909; Mitchell v. Williams, 4 Hill, 13. 3 Holbrook v. Wight, 24 Wend., 169; Winter v. Coit, 7 N. Y., 233; Covill v. Hill, 6 N. Y., 374; Wood v. Orser, 25 N. Y., 348; Henry v. Marvin, 3 E. D. Smith,

71.

4 Ante, §§ 38-42, 60, 61, 83, 97, 101–104, 156, 257, 237; Luckey v. Gannon, 37 How. Pr., 134; supra, Wood v. Orser.

5 Holbrook v. Wight, supra; see Cook v. Holt, 43 N. Y., 275.

6 Willard's Eq., 457.

7 Pratt v. Stiles, 17 How. Pr., 211, 222; 17 N. Y., 80, 84.

account of the dividends received thereon; or where the legal remedy is insufficient to afford him an adequate protection, as where the pledge consists of negotiable securities, and an injunction becomes necessary to prevent a wrongful transfer of the paper; or where a discovery is sought, or a specific performance is necessary, to protect the pledgor.3 Atender or payment of the debt must precede the action to redeem. The debt remaining unpaid in whole or in part, a receiver cannot be appointed over a mortgagee in possession; and where there is no allegation showing his want of responsibility, equity will not restrain him from selling the property. The danger is too remote. A threatened abuse of legal power, the effect of which is sure to work an immediate injury, justifies the interposition of an equitable remedy."

8

§ 314. A court of equity has no general jurisdiction over actions to redeem personal property held in pledge, without some other circumstances. rendering its interference necessary. The facts must show that the complainant is entitled to an equitable remedy; a discovery, a specific transfer of property, an injunction, or that an account must be taken." To sustain a bill for an account, there must be mutual demands, or a series of transactions on one side and of payments on the other.1o

The objection that the plaintiff has a remedy at law, must be set up in the answer; it comes too late on the hearing of the cause., We accordingly find many cases disposed of in a court of equity, for which the law provides a sufficient remedy.12 And there are many cases in which

1 Hasbrouck v. Vandervoort, 4 Sandf., 74; Kemp v. Westbrook, 1 Ves. Sen.,

278; 9 N. Y., 153; Cowles v. Whitman, 10 Conn., 121; 29 Cal., 142.

2 Brown v. Runals, 14 Wis., 693; see Illinois v. Delafield, 8 Paige Ch., 527; S. C., 2 Hill, 159, 177.

3 Benedict v. Gilman, 4 Paige Ch., 53, 526 ; 5 Id., 9. Crary v. Smith, 2 N. Y.. 60; 4 Sandf., 74.

Bayaud v. Fellows, 28 Barb., 451; Patten v. Acces. Transit Co., 4 Abbott, 235; Quinn v. Brittain, 3 Edw. Ch. R., 314; Quarrell v. Beckford, 13 Ves., 377. 6 See Reubens v. Jael, 13 N. Y., 488.

7 Ford v. Ransom, 2) How. Pr., 429; 8 Abbott Pr. (N. S.), 416: here the mortgagee was restrained from taking possession contrary to his stipulation; see Parker v. Garrison, 61 Ill., 250; Pattison v. Gilford, Law Rep., 18 Eq., 259. Glennie v. Imri. 3 You. & Coll., 433; Hirst v. Pierce, 4 Price, 333; Jones v. Smith, 2 Ves. J., 372; Demenbray v. Metcalf, 1 Vern., C98.

9 Durant v. Einstein, 5 Robt., 423.

10 Porter v. Spencer, 2 John. Ch. R., 169; Moses v. Lewis, 12 Price, 502; 13 Ves., 275.

11 Truscott v. King, 6 N. Y., 147, 165; 4 Paige, 77.

12 Hart v. Ten Eyck, 2 John. Ch. R., 100; sce Mahoney v. Caperton, 15 Cal.

313; and Hunsacker v. Sturgis, 29 Cal., 142, 267; and Donohue v. Gamble, 38 Cal., 340; Bradley v. Bosley, 1 Barb. Ch., 125.