
    [No. 17597.
    Department One.
    February 10, 1923.]
    Northern Bank & Trust Company et al, Appellants, v. Slater, Watt & Company et al., Respondents.
      
    
    Bills and Notes (90) — Payment-Rights and Liabilities on Payment — Collateral. Where one of the makers or endorsers of a note signed the same in reliance on collateral security pledged to the payee, and thereafter tendered payment of the note, he is entitled to a surrender of the collateral.
    Pledges (11) — Recovery of Property by Pledger on Payment. Where the payee of a note knew that one of the makers had signed in reliance upon collateral security pledged to the payee, and without such maker’s consent, diverted the collateral and could •not deliver it on payment of the note, it was guilty of a conversion.
    Appeal from a judgment of the superior court' for King county, Ronald, J., entered March 25,1922, upon findings in favor of the defendants, in an action on a promissory note, tried to the court.
    Affirmed.
    
      Tennant & Twitchell, for appellants.
    
      Roberts & Skeel (Frank A. Steele, of counsel), for respondents.
    
      
       Reported in 212 Pac. 1063,
    
   Mackintosh, J.

The respondent P. H. Watt was one of the stockholders of the corporation known as Slater, Watt & Company. In 1912, this company executed a note to the Northern Bank & Trust Company, indorsed by respondent Watt, and deposited with it as collateral security a note and mortgage which will be referred to as the Agren note and mortgage. The Agren note and mortgage were the property of the corporation and were specifically mentioned and described in the note as having been deposited as' collateral security to it. In 1913, respondent Watt disposed of his stock in Slater, Watt & Company. The original note to the appellant had been renewed from time to time until in 1916 a new note was given for $3,500, being tbe note here in suit, which was indorsed by the respondent Watt. This note, like the original one, recited the pledge of the Agren note and mortgage as collateral security for its payment.

The testimony shows that the bank knew that the Agren note and mortgage were the property of Slater, Watt & Company, and that the respondent Watt was no longer a stockholder in the company at the time this latter note was made, and that his name appeared upon the note in reliance upon the collateral securing it. While the bank held the Agren note and mortgage, the bank and Slater, without the knowledge or consent of the respondent Watt, agreed that the note and mortgage might be held by the bank as collateral security for a personal indebtedness of Slater. While the bank was holding the Agren note and mortgage, they were assigned by it to the president of the bank for the purpose of beginning an action thereon, which was done and a judgment recovered. The judgment was never re-assigned to the bank by its former president, who subsequently died.

In 1917, demand was made upon Watt for the payment of the note. He tendered payment and demanded delivery of the collateral or the judgment into which the collateral had been converted. The bank refused to deliver the collateral or the judgment for the reason that the bank was claiming to be entitled to hold the collateral as security for the Slater indebtedness, and for the further reason that the judgment being in the name of a former president of the bank and not having been re-assigned to the bank, it was not in position to transfer the judgment to the respondent Watt upon his payment of the note. This original tender and demand were repeated some three or four times subsequently, with the same result.

The trial court found, and the testimony sustains it, that the collateral, at the time respondent Watt tendered payment of the note, was of equal value with the amount of the note and interest then due, and held that this action to recover against respondent Watt on the note could not be maintained.

As we take it, it is immaterial to determine whether Watt was a maker, indorser, accommodation indorser or surety on the note, for his rights, in any event, as far as the issue before us is concerned, are the same. He was entitled, upon the payment of the note, to the delivery to him of the security collateral to it, and the withholding of such collateral security was, as to him, a conversion, and if the collateral so withheld was of equal or greater value than his liability upon the note, he was discharged from such liability. The bank, by putting the collateral security out of its control, either by assigning it to a third party or by accepting it as a pledge for the payment of the indebtedness of someone to whom the collateral did not belong, and put it out of its power to deliver it on payment of the debt, has committed an act of conversion. Watt’s liability terminated upon his making a tender coupled with a demand for the return of the collateral. 31 Cyc. 836, 840, 855; Douglas v. Carpenter, 17 App. Div. 329, 45 N. Y. Supp. 219; 37 Cyc. 414; Daniels, Negotiable Instruments (4th ed.), § 1311, and cases there cited. This court in Thompson v. Metropolitan Bldg. Co., 95 Wash. 546, 164 Pac. 232, has, in effect, answered the question here presented and agrees without conclusion.

The judgment is affirmed.

Main, C. J., Bridges, Holcomb, and Mitchell, JJ., concur.  