
    Tompkins County National Bank, Respondent, v. The Bunnell and Eno Investment Company, Appellant, Impleaded with George L. Gray and The American Loan and Trust Company.
    
      Negotiable instrument —pledged as a substitute for other collateral surrendered, and the principal obligation extended — bona fide purchaser.
    
    Where a bond held as collateral to a promissory note is surrendered and a new negotiable bond ior the same amount is taken in its place, and the note is renewed for a definite period of time, the substituted bond is acquired for a full consideration; and if so acquired before maturity in good faith, and without notice of any fact impairing the pledgor’s title thereto, it may be enforced by the pledgee, and is not subject in his hands to any rights which existed therein, as against the pledgor, in favor of third persons.
    Appeal by the defendant, The Bunnell and Eno Investment Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Tompkins on the 31st day of July, 1895, upon the decision of the court, rendered after a trial at the Tompkins Special Term.
    The judgment directed a foreclosure and sale of a debenture bond of $500, made and owned by The Bunnell and Eno Investment Company, the appellant, which had intrusted it to the defendant Gray, as its agent, to sell to one Livermore at par, but who, instead of selling it, pledged it, as hereinafter stated, to the plaintiff as collateral to secure the payment of his notes which the' plaintiff discounted for him.
    Before October 1, 1892, the plaintiff had discounted several notes for the defendant Gray upon the security of several bonds of other companies, among which was a bond for $500, worth that amount. These notes were renewed several times upon the continued pledge of these securities. About, but prior to, March 1893, the plaintiff at Gray’s request surrendered to him the $500 bond last mentioned, and Gray delivered to the plainfiff in its place, as collateral, the appellant’s said bond for $500. Afterwards, and on May 6, 1893, Gray executed and delivered to the plaintiff an agreement reciting the previous delivery to the plaintiff of the other bonds, and of the $500 bond here in question, “ as security for the payment of certain loans made to me by said bank,” and for value received, agreeing and consenting that the same be held by the bank “ as security for any or all notes made by me and held by said bank, or any renewals thereof, or for any notes which may be executed and delivered by me to the said bank hereafter,” and in case of default of payment of any of the notes, to dispose of the bonds without notice and apply the proceeds to the payment of his indebtedness. Thereafter the bank renewed the said notes upon the credit of said collateral and said agreement. Default having been made in payment, this action was brought to foreclose plaintiff’s lien upon all of the securities. The appellant alone defended.
    
      Walter Welch, for the appellant.
    
      Win. N. Noble, for the respondent.
   Landon, J.:

The bond belonged to the appellant. It never had any legal inception in Gray’s hands. It was delivered to him to enable him to give it a legal inception by selling it to Livermore at par, but this lie did not do. Gray’s act in transferring it to plaintiff upon his own account in exchange for another bond, and as collateral security for his own indebtedness to the plaintiff, was a fraud upon the appellant.

The bond was negotiable, and, when transferred to the plaintiff, . was not yet due according to its terms. It was the bond of a private and not of a municipal corporation, and, therefore, the cases cited by the appellant as to the bonafides of a holder, who must at his peril look to see if the statutory requirements lying at the foundation of the authority to issue the bond have been complied with, have no relevancy. The case is one where, by the act of the maker, Gray was equipped with the apparent title to a bond of apparently completed inception. The bond was negotiable in form, and, therefore, the plaintiff’s right to recover is to be tested by the rules applicable to negotiable promissory notes. (Ledwich v. McKim, 53 N. Y. 307.) As pledgee it is entitled to the same protection as if a purchaser. (Bank of N. Y v. Vanderhorst, 32 N. Y. 553; Belmont Branch Bank v. Hoge, 35 id. 65.)

Since the bond was pledged in fraud of the rights of the appellant, it was incumbent upon the plaintiff to convince the court by its evidence that it acquired the bond before maturity, in good. faith, without notice of any facts impairing Gray’s title to it, and, assuming the bond never had any inception in Gray’s hands (Joy v. Diefendorf, 130 N. Y. 6), for full and not an usurious consideration. (Canajoharie National Bank v. Diefendorf, 123 N. Y. 191.)

There was evidence upon all these questions and the court determined them in favor of the plaintiff.

That the plaintiff acquired the bond before maturity is not disputed.

As to parting with value, the plaintiff surrendered to Gray another bond of equal value for it, and thus parted with full value. (Park Bank v. Watson, 42 N. Y. 490; American Exchange National Bank v. Belting Co., 148 id. 698.) Besides, the plaintiff upon the security of this bond renewed the Gray notes, and thereby extended their payment for definite periods. Such extension is of itself a valuable consideration. (Cary v. White, 52 N. Y., 138.) In a certain sense the plaintiff received the bond upon an antecedent debt, but this is a statement of only part of the whole truth; it received this bond in exchange for another one of equal face value, whose validity and actual value are not questioned, and, therefore, holds it by the like title as it held the bond it exchanged for it.

As to good faith, the plaintiff had no actual notice of any defect in Gray’s title; there is no reason given why this bond was of any benefit to plaintiff over the one it surrendered for it. It made the exchange at Gray’s request. Certainly, if it had had any suspicion as to Gray’s title to it, it is improbable that it would have consented to take it in exchange for the other bond, as to which no defect in title is suggested. The plaintiff exchanged this bond for the other apparently to accommodate its customer Gray, under circumstances which would not excite suspicion, unless the plaintiff had further knowledge than the evidence discloses.

We think the learned trial judge properly found for the plaintiff upon the evidence.

The judgment should be affirmed, with costs.

All concurred, except Parker, P. J., not sitting.

Judgment affirmed, with costs.  