Joliet Iron & Steel Co. v. Scioto Fire Brick Co.

Mr. Justice Dickey delivered the opinion of the Court: The pledge of commercial paper as collateral security for the payment of a debt does not, in the absence of a special power for that purpose, authorize the party to whom such paper is so pledged to sell the securities so pledged, upon default of payment, either at public or private sale. He is bound to hold and collect the same as it becomes due, and apply the net proceeds to the payment of the debt so secured. A person holding property or securities in pledge, occupies the relation of trustee for the owner, and as such, in the absence of special power to do otherwise, is bound to proceed as a prudent owner would with his own. From the very nature of the case, ^property can only be applied as security through the process of sale. Hot so with bonds, mortgages or promissory notes. Wheeler v. Newbould, 16 N. Y. 392. It is insisted, however, that the bonds mentioned in the plea are not shown to have been commercial paper. It is not perceived that this could in any way alter the ease. All the reasoning in support of the doctrine laid down as to commercial paper applies with the same, if not with more, force to bonds payable upon condition. Put up to sale, no bidder can, by mere inspection of the paper, form any just judgment as to the value of such paper. The statements of the plea, in some respects, are not so full as they should be, but such defects are fully supplied by the statements in the replication. Hpon the facts as stated and confessed in the record, the judgment, upon the demurrer, should have been for appellant. The judgment must be reversed, and the cause remanded for further proceedings in accordance with the views in this opinion. Judgment reversed.