bankruptcy, who offers to give up the note originally secured) to other debts due from the pledgor to the pledgee at the maturity of the note. On the other hand, a purchaser under an express power to sell at maturity of the note secured cannot be required, long afterwards, to return the collaterals purchased upon an offer to pay the note.42

Action on Collateral.

§ 1677. Where a note is secured by mortgage, suit may be brought on the note alone.43 And the note will be subject to equities, as though it were not secured.** Suit may be brought on the note before foreclosing the mortgage, 45 or before applying other collateral to its payment.40

47

The maker of the principal note cannot require, in general, that the collateral be first exhausted. And judgment rendered on a collateral mortgage will not, in general, merge the note, and the holder may sue upon the note without offering to release or return

41 Hathaway v. Bank, 131 Mass. 14.

42 Lewis v. Mott, 36 N. Y. 395.

48

43 Lichty v. McMartin, 11 Kan. 565. If the collateral is not collected. Brewster v. Frazier, 32 Md. 302. But not in California, Barbieri v. Ramelli, 84 Cal. 154, 23 Pac. 1086; unless the security is of no value, Bartlett v. Cottle, 63 Cal. 366.

44 Sprague v. Graham, 29 Me. 160.

45 Banta v. Wood, 32 Iowa, 469. But not in Minnesota. Johnson v. Lewis, 13 Minn. 364 (Gil. 337).

46 Lormer v. Bain, 14 Neb. 178, 15 N. W. 323. And the collateral may be applied to satisfy a judgment on the note. Fowle v. Child, 164 Mass. 210, 41 N. E. 291.

47 McKee v. Whitworth, 15 Wash. 536, 46 Fac. 1045. But see, contra, where his signature has been obtained by fraud of the party furnishing the collateral. Haas v. Bank, 41 Neb. 755, 60 N. W. 85.

48 Willson v. Binford, 81 Ind. 588; Spence v. Insurance Co., 40 Ohio St. 517.. Or bar an action brought to recover money paid to an attorney to take up thenote. Nettleton v. Beach, 107 Mass. 499. So, judgment on a collateral note. First Nat. Bank v. Finck (Wis.) 76 N. W. 608. And, conversely, judgment on the principal note is no bar to a suit on the collateral. Black v. Reno, 59 Fed. 917; Burnham v. Windram, 164 Mass. 313, 41 N. E. 305; Waldrom v. Zacharie, 54 Tex. 503.

RAND.C.P.-150

(2385)

the collateral.49 If one note is given as collateral for another, action may be brought at the same time on both notes.50

It is the duty of the holder to collect the collateral when it be comes due. He may bring suit on it without first demanding payment of the principal debt,52 and before the maturity of the principal note,53 or before action on such note.54 And he will be entitled to the costs and expenses of collecting the collateral.55

Diligence as to Collateral.

§ 1678. Where collateral is received without any special agreement, the party receiving it is liable for ordinary diligence. If

56

49 Hale v. Rider, 5 Cush. (Mass.) 231; Trotter v. Crockett, 2 Port. (Ala.) 401. So, where the action is by a surety against his principal. Taylor v. Cheever, 6 Gray (Mass.) 146.

50 Lazier v. Nevin, 3 W. Va. 622; Corn Exch. Ins. Co. v. Babcock, 57 Barb. (N. Y.) 231; Eastman v. Turman, 24 Cal. 379; Turner v. Bank (Ky.) 39 S. W. 425.

51 Lishy v. O'Brien, 4 Watts (Pa.) 141.

52 Paine v. Furnas, 117 Mass. 290. And he may sue on a bottomry bond without prosecuting a worthless acceptance given for the same debt. The Ariadne, 1 W. Rob. Adm. 411. But a collateral note, given as indemnity against a breach of contract, cannot be sued until after the damages are fixed by a judgment on the contract. Rumney v. Colville, 51 Mich. 186, 16 N. W. 372. And see Belloni v. Freeborn, 63 N. Y. 390. But this is not true of a collateral note given to indemnify the accommodation indorser of another note against his liability. Merchants' & Manufacturers' Nat. Bank of Middletown v. Cumings, 149 N. Y. 360, 44 N. E. 173, affirmed in 79 Hun, 397, 29 N. Y. Supp. 782.

53 Greenway v. Grain Co., 29 C. C. A. 330, 85 Fed. 536; Seeley v. Wickstrom, 49 Neb. 730, 68 N. W. 1017.

54 Weihl, Probasco & Co. v. Atlanta Mfg. Co., 89 Ga. 297, 15 S. E. 282; Hapgood v. Wellington, 136 Mass. 217. Especially if it is not collectible. Olvey v. Jackson, 106 Ind. 286, 4 N. E. 149.

55 Cressman v. Whitall, 16 Neb. 592, 21 N. W. 458; Ludden v. Marsters, 16 Neb. 654, 21 N. W. 442.

56 Roberts v. Thompson, 14 Ohio St. 1; Lee v. Baldwin, 10 Ga. 208; Trotter v. Crockett, 2 Port. (Ala.) 401. And see § 771, supra. His negligence constitutes a defense, and discharges the debt pro tanto. Rumsey v. Laidley, 34 W. Va. 721, 12 S. E. 866; First Nat. Bank of Ft. Dodge v. O'Connell, 84 Iowa, 377, 51 N. W. 162. He cannot let the collateral become outlawed. Northwestern Nat. Bank v. J. Thompson & Sons Mfg. Co., 17 C. C. A. 638, 71 Fed.

he neglects to collect a dividend declared by the estate of the bankrupt drawer of a collateral bill, and refuses to return the bill itself, he will be liable for the negligence.57 So, if a note is given as collateral for interest accrued on a certain mortgage, with a condition that it shall not be collected unless the mortgaged property proves deficient, and the holder becomes administrator of the maker, it is his duty to exhaust the mortgage security first.58

60

61

But if the payee of a note fails to sell collateral, which afterwards becomes worthless, it will not discharge the maker. So, if he delays enforcing a collateral mortgage, and it depreciates in the meantime. So, it is no defense in favor of a surety that the payee has not enforced a collateral lien on personal property which was not in his particular care or custody; 1 or even that the surety has been injured by the foreclosure without notice to him of a small mortgage prior to the collateral mortgage, relied on by him.62 So, if an accommodation acceptance is given on the faith of collateral deposited with the indorsee, and still held for the acceptor's protection, it will be no defense for the acceptor that the collateral has not been collected.63 And the holder of collateral is in no case bound to sue upon it, where it is certain that the suit would be ineffectual.64 And the debtor cannot show by parol evidence that a collateral mortgage, on which nothing was realized, was worth enough at the time of the assignment, where he has waived his right by his agreement with the assignee.65

113; First Nat. Bank of Ft. Dodge v. O'Connell, supra; Semple & Birge Mfg. Co. v. Detwiler, 30 Kan. 386, 2 Pac. 511.

57 Childs v. Corp, 1 Paine, 285, Fed. Cas. No. 2,677.

58 Nichols v. Smith, 42 Barb. (N. Y.) 381.

59 Granite Bank v. Richardson, 7 Metc. (Mass.) 407.

60 Willson v. Binford, 81 Ind. 588.

61 Fuller v. Tomlinson, 58 Iowa, 111, 12 N. W. 127.

62 Vance v. English, 78 Ind. 80.

63 The drawer and acceptor being both insolvent at the time of the indorsement. Lee Bank v. Kitching, 7 Bosw. (N. Y.) 664. And see Fowler v. Bank, 88 Ga. 29, 13 S. E. 831.

64 Smith v. Felton, 85 Ind. 223. And the collateral need not be returned before action against the principal debtor. Olvey v. Jackson, 106 Ind. 286, 4 N. E. 149.

€5 Schmied v. Frank, 86 Ind. 250.

Trover-Between What Parties.

67

68

§ 1679. An action of trover will lie for a bill or note, e. g. for a note unlawfully taken in execution. But trover will not lie for a note because of illegal consideration merely. The maker of a negotiable note may bring suit for its conversion against one who obtained it without legal delivery, and wrongfully negotiated it to a bona fide holder; 9 or against a wrongful holder who has collected the note by suit.70 So, he may bring trover against the payee for a note transferred in violation of the condition of its delivery,71 or taken without permission after refusal of consideration offered,72 or withheld by him after it is paid.73 And one of two joint makers may have trover against the other for holding the note outstanding after it has been paid; and a like action may be brought by an accommodation maker against the party accommodated, who has taken up and holds the note. And the payment of a judgment in trover vests the title to the note in the defendant.76

74

75

So, trover lies for a note delivered as collateral, to be returned on certain conditions, which have been performed." And the maker

66 Byles, Bills, 412; Davis v. Funk, 39 Pa. St. 243; Thomson v. Gortner, 73 Md. 474, 21 Atl. 371. Or for a coupon bond. Merchants' & Planters' Nat. Bank v. Trustees Masonic Hall, 62 Ga. 271. And the payee's executor is prima facie entitled to recover against a holder without indorsement. Tuttle v. Becker, 47 Iowa, 486.

67 Ingalls v. Lord, 1 Cow. (N. Y.) 240.

68 Morrill v. Goodenow, 65 Me. 178.

69 Decker v. Mathews, 12 N. Y. 313.

70 Rushin v. Tharpe, 88 Ga. 779, 15 S. E. 830, although the lawful owner knew of the suit.

71 Brown v. St. Charles, 66 Mich. 71, 32 N. W. 926.

72 Vancleave v. Beach, 110 Ind. 269, 11 N. E. 228.

73 Stone v. Clough, 41 N. H. 290; Inhabitants of Otisfield v. Mayberry, 63 Me. 197. But not where the holder claims that the note is not paid. Pierce v. Gilson, 9 Vt. 216.

74 Spencer v. Dearth, 43 Vt. 98.

75 Park v. McDaniels, 37 Vt. 594.

76 Haas v. Sackett, 40 Minn. 53, 41 N. W. 237. But not the mere recovery of judgment. Union Pac. Ry. Co. v. Schiff, 78 Fed. 216. But see contra, in same case, Dietz v. Field, 10 App. Div. 425, 41 N. Y. Supp. 1087.

77 Robbins v. Packard, 31 Vt. 570; Stone v. Clough, 41 N. H. 290. So, the bankrupt maker's assignee may have trover for a note held by the defendant

of a note may bring trover against the payee, who has fraudulently transferred the note after failure of the consideration, even though the maker had paid the indorsee and recovered possession of the note. Where two holders in common indorse the note for collection, and one afterwards obtains and holds possession against the other, trover will lie. So, an infant may recover in trover a note unlawfully pledged by his guardian, the pledgee having notice of the restricted character of the pledgor's title.so

78

79

But trover will not lie in favor of the assignee of a bankrupt drawer of a check against a creditor who has received the check, and obtained payment upon it.81 The donee of a note causa mortis may, however, recover it in trover from the donor's executor, after he has surrendered it to him under protest.82 And where a note is transferred in contemplation of a proposed partnership, which is afterwards relinquished, and is recalled before completed delivery (in halves, through the mail), the maker may recover against the payee in trover on his refusal to surrender it.83

84

Trover against Agent-Wrongful Taker.

§ 1680. Trover lies against a common carrier for the loss of a draft, or against a bailee surrendering it for cancellation without authority, or against the payee, intrusted with an accommodation note for a special purpose, and fraudulently diverting it; 86 or

in trust to indemnify a third party against his suretyship on the maker's bond, after tender of the canceled bond to the defendant. Alsager v. Close, 10 Mees. & W. 576.

78 Buck v. Kent, 3 Vt. 99.

79 Lawatsch v. Cooney, 86 Hun, 546, 33 N. Y. Supp. 775.

so Lee v. Boyd, 86 Ala. 283, 5 South. 489.

81 Mathew v. Sherwell, 2 Taunt. 439. Such check or bill not amounting to a conversion until demand and refusal to refund are proved. Jones v. Fort, 9 Barn. & C. 764.

82 Smith v. Maine, 25 Barb. (N. Y.) 33.

83 Smith v. Mundy, 3 El. & El. 22.

84 Zeigler v. Wells, 23 Cal. 179.

85 Hicks v. Lyle, 46 Mich. 488, 9 N. W. 529.

86 Hynes v. Patterson, 95 N. Y. 1. So, where the note was given to the payee for goods purchased, and he afterwards refused to deliver the goods at the price agreed, but delivered them at a greater price. Powell v. Powell, 71 N. Y. 71, reversing 3 Hun (N. Y.) 413.