§ 2619. Title how Vested after a Pledge. It is quite obvious, on a little reflection, that it is equally within the power of the pledgor to transfer to his pledgee his legal title to secure the debt, retaining only the equity of redemption, so to speak ; or retaining his legal title to transfer a special property, sometimes (and perhaps incorrectly) called an equitable title to his pledgee; just as the owner of land may, by an absolute deed, transfer the legal title to secure a debt, retaining an equitable title, or the right, by a proceeding in equity, to have the deed declared a mortgage, in other words, to be allowed to redeem; or, on the other hand, just as he may at common law create a valid lien by delivery or deposit of title deeds as security for money. It is hence often said that, as between the pledgor and pledgee of corporate stock, the general property remains in the pledgor, and the pledgee has a special property in the pledge during the continuance of the contract of pledge. Until the debt matures, 1 Garlick v. James, 12 Johns. (N. Y.) 146; s. c. 7 Am. Dec. 294 (case of pledge of a note); Brewster v. Hartley, 37 Cal. 15; s. c. 99 Am. Dec. 237; Wilson v. Little, 2 N. Y. 443; s. c. 51 Am. Dec. 307; Dewey v. Bowman, 8 Cal. 145; Cross v. Eureka Lake &c. Canal Co., 73 Cal. 302; s. c. 2 Am. St. Rep. 808; 14 Pac. Rep. 885. A pledge of personal property passes to the pledgee merely the possession, with the right of retainer until the debt is paid, or other engagement is fulfilled for which the thing pledged is given as security. Luckett v. Townsend, 3 Tex. 119; s. c. 49 Am. Dec. 723. See Story Bailm. § 286; Doak v. Bank, 6 Ired. L. (N. C.) 309. See Cortelyou v. Lansing, 2 Caines Cas. (N. Y.) 200, where much of the learning on the subject of pledges is collected by Kent, J. But we shall see that a pledge of corporate shares passes a much larger right than a mere right of retainer: it passes a power of sale. Post, § 2659. The California Civil Code defines the contract as 66 a deposit of personal property by way of security for the performance of another act." Cal. Civ. Code, § 2986. This definition is more accurate than that usually given; for a pledge may be made to secure any lawful engagement as well as the payment of a simple debt. Isaac v. Clark, 2 Bulstr. 306. The nature of a pledge is succinctly discussed with citations of numerous authorities in a note in 49 Am. Dec. 730, et seq. A pledge differs from a common law mortgage of chattels in this. Atcommon law in a case of a mortgage, an absolute right of property vests in the mortgagee after condition broken, without the intervention of any legal proceedings; but in the case of a pledge the legal title remains in the pledgor, even after a failure on his part to perform the obligation. The possession only passes to the pledgor, coupled with a qualified power of disposition. Ryall v. Rolle, 1 Atk. 167; Jones v. Smith, 2 Ves. 378; Lickbarrow v. Mason, 6 East, 25; Sims v. Canfield, 2 Ala. 555; Cortelyou v. Lansing, 2 Cai. Cas. 200; Barrow v. Paxton, 5 Johns. (N. Y.) 258; s. c. 4 Am. Dec. the pledgee has merely a possessory lien upon the shares; and when the debt to secure which they were pledged to him is extinguished the lien is also extinguished. It is said that it is not invariably true that where personal things are pledged for the payment of a debt, the general property or legal title always remains in the pledgor, and that in all cases where the legal title is transferred to the creditor, the transaction is a mortgage, and not a pledge. While it is true that possession must uniformly accompany a pledge, yet it is true that incorporeal things, like debts, money in stocks, etc., which cannot be manually delivered may be the proper subjects of a pledge. Continuing the discussion of this subject it was said by Ruggles, J.: "There seems to be no reason why any legal or equitable interest whatever in personal property may not be pledged; provided the interest can be put, by actual delivery or by written transfer, into the hands or within the power of the pledgee, so as to be made available to him for the satisfaction of the debt. Goods at sea may be passed in pledge by a transfer of the muniments of title, as by a written assignment of the bill of lading. This is equivalent to actual possession, because it is a delivery of the means of obtaining possession. And debts and choses in action are capable, by means of a written assignment, of being conveyed in pledge. The capital stock of a corporate company is not capable of manual delivery. The scrip or certificate may be delivered, but that of itself does not carry with it the stockholder's interest in the corporate funds; nor does it necessarily put that interest under the control of the pledgee. The general property which the pledgor is said usually to retain is nothing more than the legal right to the restoration of the thing pledged on payment of the debt." 2 354; Brown v. Bement, 8 Johns. (N. Y.) 97; McLean v. Walker, 10 Id. 471; Eastman v. Avery, 23 Me. 248; Day v. Swift, 48 Id. 368; Gleason v. Drew, 9 Greenl. 82; Haven v. Low, 2 N. H. 13; s. c. 9 Am. Dec. 25; Ash v. Savage, 5 N. H. 545; Lewis v. Stevenson, 2 Hall (N. Y.) 63; Homes v. Crane, 2 Pick. (Mass.) 610; Ward v. Sumner, 5 Id. 60; Bonsee v. Amee, 8 Id. 235; Portland Bank v. Stubbs, 6 Mass. 425; 8. c. 4 Am. Dec. 451; Tucker v. Buffington, 15 Mass. 480; Fletcher v. Howard, 2 Vt. 115; Gay v. Moss, 35 Cal. 125; Conard v. Atlantic Ins. Co., 1 Pet. (U. S.) 449. 1 Cross v. Eureka &c. Canal Co., 73 Cal. 302; s. c. 2 Am. St. Rep. 808. See Brewster v. Hartley, 37 Cal. 15, 25; s. c. 99 Am. Dec. 237. 2 Wilson v. Little, 2 N. Y. 443, 447, 444; s. c. 51 Am. Dec. 307. § 2620. Sense in Which an Equitable Title Passes to the Pledgee. It is frequently said that a special property in the pledge passes to the pledgee.1 It is said in a modern case, speaking with reference to a delivery of certificates of stock in pledge, that such an assignment passes an equitable title merely, as between the parties to the transaction. The language of the court is: "By the assignment and delivery of the certificates to the bank [the pledgee] it became, in equity, the owner of the stock. As between the parties to the transaction, the title effectually passed, for assignment on the books could be enforced; but it was an equitable title only."2 But this seems to be an inaccurate use of language in describing the title of a pledgee. He has not even an equitable title to the property prior to the maturity of the debt, but he has that species of special property which consists of the right of possession and of sale, upon demand and notice to the pledgor, in case the debt is not paid at maturity. This cannot be called an equitable title, because it is not necessary for the pledgee to go into a court of equity to perfect it into a legal title. But if the pledgee receives the share certificate with an absolute power of attorney and blank assignment indorsed thereon, and the pledgee re-pledges the shares to an innocent party without notice of the rights of the original holder, this sub-pledgee may be regarded as acquiring an equitable title to the shares, as a security for the money loaned by him, of which he can not be divested by the original owner. His title is called an equitable title, because it will be negatively protected by a court of equity by withholding its usual remedy from the original assignor. The courts have dropped into this inaccuracy of expression, by adopting the analogy of an expression employed to designate the title of the unregistered transferee where the transfer is intended to be absolute between the parties. In such cases it is reasoned that, corporate shares being similar to choses in action, an equitable title passes without observing the requirements of the charter or by-laws, that there shall be a registration of the transfer on 309. 1 Doak v. Bank, 6 Ired. Law (N. C. 3 2 Noble v. Turner, 69 Md. 519, 524; s. c. 16 Atl. Rep. 124. 3 Otis v. Gardner, 105 Ill. 436. in the books.1 But it must remain true that in a strict sense, the case of a mere pledge of corporate shares, no title passes to the pledgee, either legal or equitable. 2 § 2621. Notice to the Corporation not Necessary to a Valid Pledge. Neither a notice to the corporation nor a transfer on its books is essential to the creation of a pledge of corporate stock, valid as between the pledgor and pledgee. Nor is it material that the corporate charter provides that transfers shall be made only on the books, as this provision should not be construed to include transfers in pledge; 3 and this although the charter provides that no sale or transfer shall be made without sixty days' notice, with privilege to the corporation or its members to purchase on equal terms.1 § 2622. Pledge of Corporate Stock must be in Writing. "A delivery to the pledgee of the thing pledged is essential to the contract; and until that act is performed, the special property that the bailee is entitled to hold does not vest in him. In respect to most kinds of property, a delivery of the property to the pledgee, without any written transfer of the title, is sufficient to pass the requisite special property. Incorporeal property, being incapable of manual delivery, can not be pledged without a written transfer of the title. Debts, negotiable instruments, stocks in incorporated companies, and choses in action generally, are pledged in that mode. Such transfer of the title performs the same office that the delivery of possession does in case of a pledge of corporeal property. The transfer of the title, like the delivery of possession, constitutes the evidence of the pledgee's right of property in the thing pledged. The transfer in writing of shares of stock not only does not prove that the transaction is not a pledge, but the stock, unless it is expressly made 1 Laing v. Burley, 101 Ill. 591; Kellog v. Stockwell, 75 Ill. 68. 2 Smith v. Crescent City &c. Slaughter House Co., 30 La. An. 1378; Friedlander v. Slaughter House Co., 31 La. An. 523; Factors Ins. Co. v. Marine Dock Co., 31 La. An. 149. Pilot v. Johnson, 33 La. An. 1286. 3 Crescent City Seltz &c. Water Man. Co. v. Deblieux, 40 La. An. 155; s. c. 3 South Rep. 726; Blouin v. Hart, 30 La. An. 714. 4 Crescent City Seltz. & Mineral Water Mfg. Co. v. Deblieux, supra. assignable by the delivery of the certificates, can not be pledged in any other manner." 1 § 2623. Absolute Transfer may be Shown by Parol to be a Pledge. Although the transfer is absolute and there is no written contract of pledge, the pledgor may show, on a bill in equity to redeem, that the delivery was intended as a pledge to secure a debt and not as an absolute transfer of title to the shares.2 This conclusion results more easily than the same rule in respect of mortgages, when it is considered that a pledge involves a trust on the part of the pledgee much more nearly than a mortgage does; and it has always been the rule of equity, both before and since the statute of frauds, that a trust in personal chattels may not only be created, but established and proved by merely parol declarations. But, of course, the pledgor can not show this as against third persons, whose rights have attached without notice of the real character of the transaction. 3 § 2624. Incidental Rights of the Pledgee. A pledgee of shares has no right of action at law against the directors of the corporation to recover any damages which he may have sustained by reason of their negligence and mismanagement in wasting the assets of the corporation and rendering the shares valueless.* This is clear enough, because an ordinary stockholder has no such right. The theory of the law is that the wrong is done to the corporation, and hence where a receiver has been appointed the right of action is in him, as its representative, and not in the 1 Brewster v. Hartley, 37 Cal. 15, 25; s. c. 99 Am. Dec. 237, 242. See also Wilson v. Little, 2 N. Y. 443; s. c. 51 Am. Dec. 307; Jewett v. Warren, 12 Mass. 300; s. c. 7 Am. Dec. 74; Bowman v. Wood, 15 Mass. 534; Dewey v. Bowman, 8 Cal. 145. The following cases treat of the nature of pledges of certificates of corporate stock: Hasbrouck v. Vandervoort, 4 Sandf. (N. Y.) 74; Fisher v. Brown, 104 Mass. 259; s. c. 6 Am. Rep. 235; Thompson v. Toland, 48 Cal. 99; Rozet v. McClellan, 48 Ill. 345; s. c. 95 Am. Dec. 551; Heath v. Silverthorn &c. Co., 39 Wis. 147; 2 Newton v. Fay, 10 Allen (Mass.), 505. 3 Kingsman v. Kingsman, 2 Vern. 559; Nab v. Nab, 10 Mod. 404. 4 Barnes v. Swift (Super. Ct. Cin.), 26 Ohio L. J. 110. Smith v. Hurd, 12 Met. (Mass.) 371; s. c. 46 Am. Dec. 690; post, § |