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§14. COLLATERAL SECURITIES FOLLOW RENEWALS OF PRINCIPAL NOTE.-The renewal of a negotiable bill or note representing the principal indebtedness, for the payment of which collateral securities have been deposited, does not affect the right of the creditor to retain or enforce the collaterals. He is equally entitled to the benefit of the collateral securities as a means of obtaining payment of the note or bill given in renewal as in the case of the original evidence of indebtedness.1 Where "short" paper is taken as collateral security, it involves rather its renewal, or the substitution of other securities than its collection. But wliere a note is pledged as collateral security, under circumstances as to the original debt which fails to make the pledgee a holder for value, a renewal of the note is subject to the same objection. The transaction is regarded simply as a prolongation of the original contract.3

$15. EXCHANGE OR SUBSTITUTION OF COLLATERAL SECURITIES.-The exchange or substitution of other securities for those originally delivered as collateral, has no effect upon the rights of the pledgee, as founded upon the original contract. The surrender of the securities originally depos

1 Jones v. Guaranty Co., 101 U. S. 622; Worcester Nat. Bank v. Cheeney, 87 Ill. 702; Cherry v. Frost, 7 Lea, 11; Collins v. Dawle, 4 Col. 138; Burton v. Peterson, 12 Phila. 397; Shaw v. Clark, 49 Mich. 384; Cover v. Black, 1 Barr, 493; Lytle's App. 36 Pa. St. 131; Shrewsbury Savings Inst. App. 94 Pa. St. 309; Brinkerhoff . Lansing, 4 Johns. Ch. 65, 73; Merchants' Nat. Bank v. Hall, 83 N. Y. 338; Agawam Bank v. Strever, 18 Ib. 502; Davis v. Maynard, 9 Mass. 242; Watkins v. Hill, 8 Pick. 522; Pomeroy v. Rice, 16 Ib. 22; Taber. Hamilton, 97 Mass. 489; Patterson v. Johnson, 7 Ohio, 225; Dayton Nat. Bank c. Merchants' Nat.

Bank, 37 Ohio St. 208; Reddish v. Watson, 6 Ham. (Ohio) 510; N. H. Savings Bank v. Gill, 16 N. H. 578; First Nat. Bank v. Bates, 1 Fed. Rep. 502; s. c. 19 A. L. R. (N. S.) 566; Ex parte Price, 3 M. D. and D. 586; Combe v. Wolff, 8 Bing 156: Howell v. James, 1 Cr. M. and R. 97. The renewal of a note given as collateral security for a pre-existing debt, does not, in Maine, constitute the pledgee a holder for value in the usual course of business. Nutter v. Storer, 48 Me. 163; Bramhall v. Beckett, 31 Ib 265. Girard Fire Ins. Co. v. Marr, 46 Pa. St. 504.

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ited is a valuable consideration for the giving of the new securities, and the pledgee is as to the latter a holder for value, in the usual course of business. Such exchange and substitution is sometimes of the utmost, benefit to the pledgor, and is supported as against creditors, for the reason that they are not harmed thereby. Even after

a pledgor is known to be insolvent, such exchange and substitution of securities is valid, if made bona fide, the pledgee receiving securities of no greater value than those surrendered. The pledgee of negotiable securities, made by third parties, and holding the title thereto, may exchange them for other securities of like value from such parties, without the consent of the pledgor, although if this be done, the pledgee assumes an increased responsibility. Taking a security for a less amount, unless explained, renders the pledgee liable.* All that is required of the pledgee in such exchange of securities, is proper care and diligence.5

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121.

Sawyer v. Turpin, 91 U. S. 114,

$ Cook e. Tullis, 18 Wall. 340; Tiffany . Boatmen's Saving Inst, Ib. 375; Clark v. Iselin, 21 Ib. 360; Watson v. Taylor, Ib. 378; Burnhisel

. Firman, 22 Ib. 170; Sawyer v. Turpin, 91 U. S. 114, 121; in re Swenk, 9 Rep. 643; Stevens v. Blanchard, 3 Cush. 169; Abbott v. Pomfert, 1 Bing. N. C. 462.

4 Girard Ins. Co. v. Marr, 46 Pa.

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St. 504. The court say:
The mere
exchange of the securities is not suffi-
cient to establish loss to the owners
of the collaterals by the exchange."
One of the pledgers informed the
pledgee that if the securities were
exchanged by them, they "would
have to renew them at their risk,
and take them as cash." The court
say: "This warning does not estab-
lish ipse facto a loss by reason of the
exchange. They could not thus
change the terms of the pledge."

Bank of U. S. v. Peabody, 20 Pa.
St. 454; Muirhead v. Kilpatrick, 21
Ib. 237; Seller v. Jones, 22 Ib. 423;
Girard Life Ins. Co. v. Marr, supra.

CHAPTER III.

THE PLEDGEE A HOLDER FOR VALUE.

§16. The pledgee of negotiable collateral securities for present advance a holder for value.

17. Negotiable securities as collateral for future advances.

18. The pledgee of negotiable collateral securities, for an antecedent debt, without more, a holder for value.

19. The decisions of the United States Supreme Court.

20. Railroad Company v. National Bank.

21. The contra state rule not followed.

22. The rule in England.

23. The contra rule-the pledgee for an antecedent debt, without more, not a holder for value.

24. The New York rule as to pledge for antecedent debt.

25. The rule in Missouri.

26. The rule in Ohio and other states.

27. The pledgee for antecedent debt, with new consideration, a holder for value.

28. Transfer in payment of antecedent debt.

29. Such transfer is prima facie as collateral security. 30. The rule in Massachusetts and Vermont.

$16. THE PLEDGEE OF NEGOTIABLE COLLATERAL SECURITY FOR PRESENT ADVANCE, A HOLDER FOR VALUE. -The pledgee of negotiable instruments, as bills of exchange and promissory notes, before maturity, by indorsement and delivery, so that he becomes a party thereto, for a present advance, and as a part of the transaction of loan, and without notice of antecedent equities, is a holder for value in the due course of business.1

1 Lehman . Tallahassee Man, Co. 64 Ala. 567; Miller v. Pollock, 99 Pa. St. 202; Plotts v. Byers, 17 Ia.

303; State Savings Assn. v. Hurst, 17 Kan. 532; Best v. Crall, 23 Ib. 482; Logan v. Smith, 62 Mo. 455;

While such collateral security is not regarded as the principal foundation for the advance, yet the pledgee parts with his money upon the faith that the collateral notes will be paid in the event that the principal note is not; and, having parted with value upon receiving such collateral notes, is a holder for value thereof.1 A loan of money to one insolvent upon collateral securities pledged at the time of the loan, if the same be free from fraud, and even if the lender has reason to believe the borrower is insolvent, is a valid transaction, and the pledgee may retain the securities until the debt is paid. The power to raise ready money under such circumstances may be of great value to the borrower.2

Duncombe v. R. R. Co., 84 N. Y. 190; Richardson v. Campbell, 48 N. Y. 348; Williams v. Smith, 2 Hill, 301; Ferden v. Smith, 2 E. D. Smith 106; Bank of N. Y. v. Vanderhorst, 32 N. Y. 553; Farwell v. Importer's Bank, 90 N. Y. 483; Holbrook v. Bassett, 5 Duer. 147; Brookman v. Metcalf, Ib. 429; Van Blarcum v. Broadway Bank, 37 N. Y. 540; Munn . McDonald, 10 Watts, 270; Brown . Warren, 43 N. H. 430; Chicopee Bank v. Chapin, 8 Met. 40; Tarbell. Sturtevant, 26 Vt. 513; Griswold v. Davis, 31 Vt. 390; Bond v. Wiltze, 12 Wis. 611; Crosby v. Roub, 16 Ib. 616; Lyon v. Ewings, 17 Ib. 61; Curtis v. Mohr, 18 Ib. 615; Bowman v. VanKuren, 29 Ib. 219; Louisiana State Bank o. Gaienne, 21 La. Ann. 555; Mechanics' Assn. v. Ferguson, 29 La. 549; Hotchkiss v. Nat. Banks, 22 Wall. 354; Tiffany v. Boatmen's Inst. 18 Ib. 375; Michigan Bank. Eldred, 9 Ib. 544, 553; Railroad Co. v. National Bank, 102 U. S. 14. 25. The Court (Harlan, J.) say: "It may be regarded as settled in commercial jurisprudence

-there being no statutory regulation on the subject-that where negotiable paper is transferred by indorsement, as collateral security for a debt created, or a purchase made, at the time of the transfer * * ** the holder who takes the transferred paper, before its maturity, and with out notice, actual or otherwise, of any defence thereto, is held to have received it in due course of business, and, in the sense of the commercial law, becomes a holder for value, entitled to enforce payment, without regard to any equity or defence which exists between prior parties to such paper."

1 Bank of New York v. Vanderhorst, 32 N. Y. 553; Miller v. Pollock, 99 Pa. St. 202.

Tiffany v. Boatmen's Inst. 18 Wall. 376, 388; Cook v. Tullis, Ib. 340; Wilson v. City, 17 Ib. 375; Mays . Fritton, 20 Ib. 414; Clark v. Iselin, 21 Ib. 360; Watson v. Taylor, Ib. 378; Burnhisel v. Firman, 22 Ib. 170; Sawyer v. Turpin, 91 U. S. 114; Jerome v. McCarter, 94 Ib. 734; Hutton v. Crittwell, 1 El. & Bl. 15;

The rule that the pledgee of negotiable instruments, properly indorsed and delivered, receiving the same as collateral security for a present advance, is a holder for value, is illustrated by the favor shown him in common with other holders for value of negotiable paper. Payments made by an acceptor of a bill of exchange to the pledgor thereof, who had previously indorsed the bill as security for a present advance, do not affect the right of the pledgee to recover the whole amount of the bill.1 Nor will the fact that notes, tainted with illegality, were pledged as collateral security for other notes discounted, the money on which was paid over, and the indorsement of the notes was made for the purpose of cutting off the equities of the maker, be any defence against the pledgee, without notice, and claiming under a bona fide advance. Pledges of negotiable bonds by a corporation to its directors and also to bankers, for present advances, constitute them holders for value." pledgee of bills of exchange, made for approximate amounts, upon which advances were made, and for which drafts for the actual amounts were afterwards substituted, is preferred to a representative of other creditors, appointed before the drafts were actually paid.* Upon an agreement to deposit securities at the time the advance is made, a subsequent delivery of them is enough to make the pledgee a holder for value upon a present advance."

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$17. NEGOTIABLE SECURITIES AS COLLATERAL FOR FUTURE ADVANCES.-The pledgee of negotiable instru

Bittleston v. Cook, 6 Ib. 296; Harris v. Rickett, 4 H. & N. 1; Bell v. Simpson, 2 Ib. 410; Hunt v. Mortimer, 10 B. & C, 44; ex parte Sharse, Crabbe, 482; Wadsworth v. Tyler, 2 B. R. 101; Lee v. Hart, 11 Exch. 880; Pennell v. Reynolds, 11 C. B. N. S. 709.

1 Savings Assn. v. Hunt, 17 Kan. 532.

Third Nat. Bank v. Harrison, 10 Fed. Rep. 243.

Lehman v. Tallahassee Mang. Co. 64 Ala 567; Duncombe v. R. R. Co., 88 N. Y. 1; s. c. 84 N. Y. 190; Claflin v. South Carolina R. R. Co., 4 Hughes, 12.

4 Young v. Northern Ill. etc. Assn. 9 Biss. 300.

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Fenby v. Pritchard, 2 Sandf. 151.

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