
    Thomas G. Field, as Executor of and Trustee under the Last Will and Testament of Henry Weil, Deceased, Respondent, v. Richard C. Sibley, Appellant.
    . Mote seemed by mortgage bonds — a demand is not necessary — the bonds are not converted by an agreement with other bondholders for the foreclosure of the mortgage — the purchase price of the bonds must be money.
    
    An action against the maker of a promissory note accompanied by a deposit of collateral and payable by its terms “ on demand, and upon return of securities given, ” may be maintained without a preliminary demand. In such a case it is sufficient for the payee to produce the note and the collateral upon the trial.
    
      Where the collateral consists of corporate bonds secured by a trust mortgage, the payee, independent of the fact that he. was given authority to sell such bonds, may, upon default under the bonds, co-operate with the other bondholders in securing a foreclosure of the mortgage, and may agree that his proportionate share of the expenses of the foreclosure action shall be a lien on the bonds.
    
      Semble, that in so doing the payee acts by virtue of his power to sue for and collect the collateral security; that'as, however, the purpose of such power is to obtain cash to apply on the debt, the payee has no power to consent that the purchase price shall be paid by the application of the bonds instead of in money. ,
    Goodrich, P. J., dissented.
    Appeal by the defendant, Richard C. Sibley, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Queens on the 11th day of June, 1901, upon the decision of the court rendered after a trial at the Queens County Special Term.
    This action was brought to recover upon a promissory note made by the defendant to the plaintiff’s testator, which note was secured by a quantity of the mortgage bonds of a corporation and was, by its terms, made payable “ on demand, and upon return of securities given.” The defendant as a defense and counterclaim alleges a conversion of the bonds deposited as security.
    
      L. Laflin Kellogg [Alfred C. Petté with him on the brief], for the appellant.
    
      George W. Wickersham, [W W. Thompson with him on the brief], for the respondent.
   Jenks, J.:

Action lies against the maker of a demand note without preliminary demand. (Parker v. Stroud, 98 N. Y. 379, 383; Cottle v. Marine Bank of Buffalo, 166 id. 53.) I see no reason why the. fact that the note was accompanied by collateral which, related solely, to it should vary the rule. For, if the fair implication was that the collateral should be surrendered at the same time the’ note was. delivered up, and the right of the maker to receive the collateral and the note “ stood upon the same footing,” as ..was said in Ocean National Bank of N. Y. v. Fant (50 N. Y. 474), then it follows that, if it was sufficient to produce the note on the trial, if was sufficient if the collateral was produced at that time. The discrimination to be made between this case and Fant's Case (supra) is that the latter case was against an indorser against whom demand must have been made. (Parker v. Stroud, supra.) I have no quarrel with the doctrine that where a demand was necessary the collateral as well as the note must be present to constitute a valid demand. Holmes & Griggs Co. v. Holmes & Wessell Co. (53 Hun, 58) was decided upon the authority of Fant's case; it was properly held that the makers of the note were entitled to receive the stock on payment of the notes, and that, in order to make a demand, both stock and notes must be held in readiness for delivery. It may be noted that in Holmes’ Case (supra) the court say that there does not seem to have been any tender of the stock at any time before the trial, nor, so far as we can find out, was there any tender of the stock upon the trial.”

It is contended that the conversion is shown by the co-operation of the pledgee with the other bondholders in the foreclosure of the mortgage in his assent that his proportionate share of the expenses thereof might be a lien upon the bonds and that the trustee might apply the bonds in payment at the foreclosure sale. A pledgee has the right to sue for and to collect the collateral security (Farwell v. Importers', etc., Nat. Bank, 90 N. Y. 483,489; Wheeler v. Newbould, 16 id. 392, 396; Nelson v. Eaton, 26 id. 410), irrespective of the time when the principal debt is due. (Warner v. Rising Fawn Iron Co., 3 Woods [U. S.], 514; Jones v. Hawkins, 17 Ind. 550; Jones Pledg. § 665) where it is said : “ The money, when received, is a substitute for the note, and is to be held upon the same terms and subject to the same rights and duties as the note.” The expression of the power to sell did not take away the power of collection. (Nelson v. Eaton, supra ; Farwell v. Importers', etc., Nat. Bank, supra.) The pledgee was entitled to require the foreclosure and sale of the mortgaged property upon default upon the bonds. (Coleb. Col. Sec. § 124; 2 Cook Stock & Stockh. & Corp. Law [3d ed.] § 825; Land Co. v. Peck, 112 Ill. 408, 439; McCurdy's Appeal, 65 Penn. St. 290, 297; Allen v. Dallas & Wichita Railroad Co., 3 Woods [U. S.], 316.) The proceeds of a collection are a substitute for the collateral, to be held by the pledgee as trustee for the purposes of the pledge. (Farwell v. Importers', etc., Nat. Bank, supra; Jones Pledg. supra.) As the pledgee was entitled to charge the expenses of the collection against the pledgor (Jones Pledg. § 680; Griggs v. Howe, 2 Abb. Ct. App. Dec. 291), it cannot be said that his agreement that the bonds might he charged with a proportionate share of the expenses of collection, i. e., of the foreclosure, was beyond his implied powers.

If it had appeared that the property had been sold under the foreclosure decree and that the purchase price was paid by application of the bonds, and not in money, then a serious .question woiild have been presented. There is evidence from which the court' might have found that the payment of the note had never been demanded. Therefore, the right of the pledgee might be strictly confined to enforce the payment of the bonds because there had been a default thereon. Under the authorities cited he might institute foreclosure as a means of collection, and he might enter upon the agreement for a foreclosure contemplated for that was the only procedure open to him for that purpose. (Batchelder v. C. G. W. Co., 131 N. Y. 42.) But collection by foreclosure would import a sale to realize money to be held by the pledgee as the cash return of the bonds, which were- payable in money. There is evidence that the pledgee entered into. the foreclosure agreement against the protest of the pledgor. If this is so he should be held strictly to his .power of collection, and, in the absence of any assent, lie should not be permitted to defeat the end of collection, which is cash. In Garlick v. James (12 Johns. 146), Thompson, Ch. J., said: “The authority of the' defendant with respect to the note could extend no further than to receiving the money due upon it, without first calling upon the plaintiff, in some way, to redeem. The money, when received, would be a substitute for the note, and to he held upon the same terms and subject to the same rights and duties as the note.” (See, too, Gage v. Punchard, 6 Daly, 229 ; Fairbanks v. Sargent, 117 N. Y. 320, 332.) The duties and relations of a pledgee are said by O’Brien, J., in Toplitz v. Bauer (161 N. Y. 325), to be “ governed more by the general maxims of equity than by the strict rules of the common law,” and lie' is to be regarded as clothed with a trust, first to pay the debt and then to account for the surplus. He must deal with the pledge “ in any way consistent with the general ownership and the ultimate rights of the pledgor,” and, consequently, “ he cannot deal with the pledge under his special and temporary property right so as to impair or to destroy it to the detriment of the pledgor.” (Lawrence v. Maxwell, 53 N. Y. 19.) If, then, through the acts of the pledgee, merely under his plea of a right of collection, the foreclosure sale had resulted so that the purchase price was paid by an application of the bonds instead of in money, this in effect would have been his substitution of property other than money in satisfaction of the bonds which he held in trust as pledgee. In Laverty v. Snethen (68 N. Y. 522) the court say: Every unauthorized taking of personal property, and all intermeddling with it, beyond the extent of the authority conferred, in case a limited authority has been given, with intent so to apply and dispose of it as to alter its condition or interfere with the owner’s dominion, is a conversion. (Bonv. Law Dict., title Conversion.) ” This definition was approved in Industrial & General Trust v. Tod (170 N. Y. 233). But it does not appear in this record that any proceedings were had subsequent to the entry of the foreclosure, and, therefore, no practical question is presented .for the consideration of the court. (See, too, Storm v. Livingston, 6 Johns. 44.)

The judgment should be affirmed, with costs.

All concurred, except Goodrich, P. J., who read for reversal.

Goodrich, P. J.

(dissenting):

I dissent. The note was payable on demand and return of securities. I think demand and tender must take place before action.

There was no such demand or tender of securities before action, and it was not sufficient compliance with the terms of the note to tender the bonds at the trial.

.When the tender was made at the trial, the bonds, with the consent of the pledgee, and by his affirmative action, had merged in the judgment of foreclosure. The bonds were then valueless except for their right to participate in the benefit of the sale under the decree.

By the terms of the agreement of the bondholders, the pledgee, at any time before judgment had been entered, could have withdrawn the bonds burdened only with a proportionate share of the expenses of the foreclosure action, but when they had merged in the judgment this power ended.

The pledgee dealt with the bonds to a greater extent than simply taking proceedings for their collection.

Under the bondholders’ agreement the committee of the bondholders therein named was authorized to pay for the mortgaged premises on the foreclosure sale with the bonds deposited with the committee. This exceeds tiré powers of a pledgee and goes beyond simple proceedings for collection. As the bonds merged in the judgment, and as the pledgee had consented to and authorized a" material change in the character and condition of the securities, his action, in my opinion, constituted a conversion of the bonds.

Judgment affirmed, with costs.  