Redemption, Termination, and Sale Upon redemption it is the legal duty of the pledgee to re deliver, together with all profits and increase, the property pledged. The article redelivered must be the identical property originally pledged where it is distinctive in character, but such identity is not necessary in the case of certificates of stock and bonds. If the pledgee wrongfully sells or misapplies the property pledged, he is guilty of conversion. There is conflict of opinion as to rule of damages in such cases; some hold it should be the value of the property at the time of its wrongful sale or misappli cation; others, the value at the time of redemption and demand; others, an intermediate value. New York courts and the United States courts hold, in case of pledged property subject to fluctua tions in value, that the damages should be the highest value within a reasonable time after the pledgor becomes aware of the conversion.
The pledge may be terminated by the pledgor either per forming his full obligation or by defaulting. At maturity, upon default in redemption at the agreed time by the pledgor, the pledgee has the right: (I) to sue on the debt secured, and (2) to sell the pledged property in certain ways. The pledged property is still a mere security and does not become the property of the pledgee; he realizes either by suit or sale. He may simply con tinue to hold the property until it is redeemed. If he sells it, the excess of the selling price after his claim is satisfied is held in trust for the pledgor. He is not compelled to rest exclusively upon the collateral for repayment, unless there is some agree ment, express or implied, to that effect. He may sue on the general credit of the debtor and recover a judgment against him for the full amount of the debt, without destroying or in the least affecting his lien on the property pledged; the debt remains until it is satisfied.
After the secured debt has become due and the debtor has failed to comply with the demand of the pledgee to pay, the pledgee, upon reasonable notice to the debtor of the time and place of sale, may sell the pledged property at public auction. The purpose of the notice is to enable the debtor to provide bid ders there to bid up the price and to see that the sale is conducted fairly. To fail to give notice or to sell before notice, is a conver sion, and the pledgor may maintain trover. If the pledgor is otherwise informed of the time and place of the sale, notice is not necessary, but the burden of proving that the debtor had such knowledge is then upon the pledgee; the safest way is to have a formal written notice served upon him. By terms of the
debt contract the debtor may waive the right of notice and may empower the pledgee to be a bidder at the sale, whereas other wise the pledgee cannot, directly or indirectly, be a purchaser. The public sale is required so as to insure the best terms for the pledgor; but since such a sale for stocks, bonds, and similar securi ties would be slow and might result in loss by depreciation of values, a sale, after notice to the pledgor, on the stock exchange is regarded as the readiest method of collection. If a broker, for instance, is carrying stocks or bonds for a customer, he may, upon notice to the customer, sell the stocks or bonds on the ex change. If, however, the pledged property is commercial paper, upon default of payment by the pledgor the pledgee has no right, in the absence of special authority for that purpose, to sell the paper at public or private sale; he is bound to hold and collect it as it comes due, and apply it to the debt.
If the pledge is a general one, with neither the time of redemp tion nor the manner and time of sale stated in the contract, or if there are conflicting claims, or the title is doubtful, or if it is im possible to give notice and there is no adequate remedy at law, the pledgee would institute proceedings in a court of equity and have the court order a sale. The parties may have agreed in the pledge contract on the method of sale in case of default; but in the absence of such specifications the pledgee is bound, as if he were a trustee, to act in good faith and to try in all reasonable ways to render the sale most beneficial to the debtor, such as sell ing it in parcels or altogether, according to which is the more advantageous. Some states have special statutes regulating the sale of the pledge upon default of the pledgor, either as a substitute or additional mode of selling.
The pledge may be terminated in numerous ways: I. By redelivery to the pledgor. This redelivery must not be simply for a special or temporary purpose, as a pledgor in such case is a mere bailee for the pledgee. The delivery may be a voluntary surrender of the pledge at any time before payment of the debt, a substitution of other security, or a waiver of his rights by the pledgee.