ARTICLE 7.

ENFORCEMENT OF PLEDGE.

231. Methods of enforcement.

232. Pledgee generally may not sell evidence of indebtedness.

233. Demand of performance of principal obligation must be made.

234. Demand of performance, how waived.

235. Actual notice of sale must be given pledgor. 236. Sale of pledged property must be made at public auction.

237. Irregular sale voidable.

238. Pledgee may purchase at sale.

239. Application of proceeds of sale.

240. Pledgee may maintain action for deficiency.

231.

Methods of Enforcement.1

An obligation secured by pledge may be enforced against the pledged property either (1) by a nonjudicial sale as hereinafter provided,2 or

(2) by a foreclosure action.3

1 Methods of Enforcement: Wilson v. Brannan, 27 Cal. 258, 271; Wright v. Ross, 36 Cal. 414, 429; Ehrlich v. Ewald, 66 Cal. 97, 4 Pac. 1062. Compare Mauge v. Heringhi, 26 Cal. 577.

2 Nonjudicial Sale.-Civil Code, section 3000: "Where performance of the act for which a pledge is given is due, in whole or in part, the pledgee may collect what is due to him by a sale of the property pledged, subject to the rules and exceptions hereinafter prescribed."

3 Foreclosure Action.-Civil Code, section 3011:

232. Pledgee Generally may not Sell Evidence of

Indebtedness.4

In the absence of a special agreement permitting the sale, a pledgee or pledgeholder must not himself sell any evidence of indebtedness pledged to him, except the obligations of govern

"Instead of selling pledged property, a pledgee may foreclose the right of redemption by a judicial sale, under the direction of a competent court."'

4 Civil Code, section 3006, provides. "A pledgee cannot sell any evidence of debt pledged to him, except the obligations of governments, states, or corporations; but he may collect the same when due."

Where the pledged property is a note secured by mortgage, the pledgee may upon its maturity collect it by a foreclosure action: Kelly v. Matlock, 85 Cal. 122, 129, 24 Pac. 642.

5 In Absence of Special Agreement.-The provision that the pledgee must not sell the evidence of indebtedness, being designed for the benefit of the pledgor, may be waived by him. The effect of an agreement, however, which permits the pledgee to sell the evidence of debt is not to restrict the pledgee to the mode agreed upon (as was urged by counsel), but is merely a permission added to his statutory rights; so that he may either sell or collect, while under the code he could only collect. The authorization is considered in law as given not for the purpose of restricting or curtailing the rights of the pledgee, but for the purpose of enlarging his rights, making the pledge more advantageous to him by giving him a more effectual and speedy means of obtaining money from his security: McArthur v. Magee, 114 Cal. 126, 129, 45 Pac. 1068; Farmers' etc. Bank v. Copsey, 134 Cal. 287, 66 Pac. 324. Compare Donohoe v. Gamble, 38 Cal. 340, 351, 99 Am. Dec. 399.

6 Civil Code, section 3006, applies to a pledgeholder: Fernandez v. Tormey, 121 Cal. 515, 520, 53 Pac. 1119.

ments, states, or corporations. He may, however, collect the same when due, or cause it to be sold by judicial sale in a foreclosure action."

'233. Demand of Performance of Principal Obligation must be Made.

After the principal obligation is due and before a sale of the property pledged as security for the performance thereof is made, the pledgec must demand performance thereof from the debtor if the debtor can be found.8

234.

Demand of Performance, How Waived.

A debtor or pledgor waives a demand of performance as a condition precedent to a sale of the pledged property by a positive refusal to perform after performance is due; but cannot waive it in any other manner except by contract.9

7 Such evidence of debt is, however, subject to sale in a foreclosure action in satisfaction of the demand secured thereby: Donohoe v. Gamble, 38 Cal. 340, 353, 354, 99 Am. Dec. 399 (Rhodes, J., dissenting). 8 Compare Civ. Code, sec. 3001.

Dewey v. Bowman, 8 Cal. 145, 151; Gay v. Moss, 34 Cal. 125, 132.

Where the pledgee does not demand performance nor give reasonable notice of the intended sale, the sale amounts to a conversion, and the pledgor becomes liable for the value of the pledged property with interest, less the amount of the secured obligation: Gay v. Moss, 34 Cal. 125, 132.

9 Civ. Code, sec. 3004.

Hyatt v. Argenti, 3 Cal. 151, 160-167; Bendel v. Crystal Ice Co., 82 Cal. 199, 22 Pac. 1112.

235. Actual Notice of Sale must be Given Pledg

or.

A pledgee must give actual notice to the pledgor of the time and place at which the pledged property will be sold, at such reasonable time before the sale as will enable the pledgor to attend; but such notice may be waived by the pledgor at any time. Mere waiver of demand of performance does not waive this notice.10

236. Sale of Pledged Property must be Made at Public Auction.

The sale by a pledgee of pledged property must be made at public auction in the manner and upon the notice to the public usual at the place of sale in respect to auction sales of similar property, and must be for the highest obtainable price; but the pledgor may consent to a private sale.11

An express stipulation in writing made by a pledgor in a draft on the pledgee making it payable when the pledgee was in funds from the proceeds of the securities placed in his hands, after deducting the amount due him and interest, sufficiently shows the authority of the pledgee to sell at his pleasure without demand of payment: Hyatt v. Argenti, 3 Cal. 151, 158.

10 Civ. Code, secs. 3002, 3003; Bendel v. Crystal Ice Co., 82 Cal. 199, 22 Pac. 1112.

11 Civ. Code, sec. 3005.

Williams v. Hahn, 113 Cal. 475, 45 Pac. 815.

Where but two days' notice of the sale was given, and the evidence showed that as much as ten or

237. Irregular Sale Voidable.12

A sale of pledged property which is not made in conformity with the provisions of the five preceding sections is voidable at the election of the pledgor exercised within a reasonable time.13

238. Pledgee may Purchase at Sale.

Whenever pledged property is sold by the holder thereof as hereinbefore provided, the pledgee or pledgeholder may purchase such property at the sale.14

twenty days' notice was usually given of the sale of similar property, the sale is invalid: Bendel Crystal Ice Co., 82 Cal. 199, 22 Pac. 1112.

V.

12 Sale is Merely Voidable.-"The provision of the code for notice to the pledgor before sale of a pledge is made for his benefit, and he alone has a right to complain of its omission. Where, after a sale without notice, he has been credited upon his indebtedness with the full value of the pledge, it may be greatly to his advantage to accept the situation, and he may ratify the sale either expressly or by implication. He is not bound to object, and until he does object the sale and credit bind his creditor': Colton v. Oakland Bank of Savings, 137 Cal. 376, 70 Pac. 225, 228A.

Sale rendered valid by being ratified: Child v. Hugg, 41 Cal. 519; Hill v. Finigan, 62 Cal. 426, 439.

As to the Rights Which Third Parties may Obtain in the Pledged Property by its transfer by the pledgee, see sections 204 and 205, above.

13 Election to Declare Sale Void Must be Exercised Within a Reasonable Time: Hill v. Finigan, 77 Cal. 267, 272, 11 Am. St. Rep. 279, note, 19 Pac. 494.

14 Compare Civ. Code, section 3010, as amended in effect March 8, 1895.

Historical.-Under the common law the pledgee could not become a purchaser at his own sale, and