It probably may have arisen from not clearly discriminating the precise state of facts upon which the different views found themselves. This will readily be perceived by carefully examining the opinions of the different judges. But we think something of this embarrassment may be got rid of by careful classification.

I. Where the negotiation of the note or bill, as between debtor and creditor, is understood to operate either as conditional payment, or to create an expectation between the parties, that the collection of the principal debt shall be delayed until the time of payment of the collateral security, there can be no question that, upon principle and authority, the creditor must be said to take the paper upon full consideration, and in the due course of business. The conflict in the cases seems to arise upon the question, what is implied by accepting a note or bill, on time, for a pre-existing debt then due?

1. This will depend, to some extent, upon commercial usage, and the ordinary course of doing business, and the natural implications, from the mere act of accepting the note or bill, and is, therefore, matter of fact, in part, at least. The implication, as matter of fact, is different, in some respects, whether the new note or bill is for the precise amount of the existing debt, as in Michigan State Bank vs. The Estate of Leavenworth, 28 Vert. R. 209; or for a different sum, either more or less, and especially when it is for a less sum. Where the new security is for the precise sum of the debt, and is payable on time, there is, in fact, a very strong implication that the creditor will wait until the maturity of the new security. And in that view the cases all agree that the new security is taken for value, and that all equities in favor of other parties will be excluded. And a

similar implication results where the new security is for a larger sum than the existing debt, as in Atkinson vs. Brooks, 26 Vert. R. 569.

2. But where the security is of a different character from the original debt, as where the creditor takes a mortgage from the debtor for the payment of the sum due in six months, it is not understood there is any implication of a contract to delay the collection of the debt of other parties: United States 28. Hodge, 6 How. U. S. R. 279.

3. And where the new security is not given in lieu, or on account of the existing debt, but as a mere pledge, the title of the new security remaining in the debtor, and not passing to the creditor, thus making the creditor the mere trustee or agent of the debtor for the collection of the new security, to be applied, when collected, upon the existing debt, between them, as was held in the case of Austin vs. Curtis, 31 Vt. R. 64; the cases all agree that there is no implied undertaking not to collect the existing debt in the mean time.

The following cases may therefore be regarded free of doubt, both upon principle and authority:

1. If the collateral is given in security at the time the debt is created, and as an inducement for the credit, and is a negotiable instrument, and still current, and is, in fact, negotiated to the creditor, so as to make him a party to the paper, and impose upon him the duty of demand and notice, according to strict commercial usage, the cases all agree, so far as they have comprehended the questions involved, that all equities of third parties are excluded: Chickopee Bank vs. Chapin, 8 Met. R. 40; Griswold vs. Davis, 31 Vt. R. 390; Palmer vs. Richards, 1 Eng. L. & Eq. R. 529 The declaration in Williams vs. Little, 11 New H. 66, and many other cases to the

contrary, is certainly not maintainable apon any fair view of the question, in that precise form of it.

2. If the collateral is not so negotiated as to make the creditor a party to the paper, and thus impose upon him the duty of making demand and giving notice, but making the creditor the mere agent of the debtor for the collection of the new bill or note, there is no ground of excluding equities in other parties, unless the creditor negotiates the security thus left in his hand to some third party, for value and while current: Palmer vs. Richards, 1 Eng. L. & Eq. R. 529; Atkinson vs. Brooks, 26 Vert. R. 569; De La Chaumette vs. Bank of England, 9 B. & C. 208; Allen vs. King, 4 McLean R. 128.

In such case the debtor, it would seem, may recall his collaterals, as the creditor, being his agent, is under his control. But this is certainly not the ordinary ease of collateral security.

3. Where there is either an express contract with the creditor, that he shall, in consideration of the indorsement of the new bill, or note, as collateral, delay the collection of the existing debt until the maturity of the new security; or where such an understanding is reasonably to be presumed, from the facts and circumstances attending the transaction, and the delay is thereby obtained, there is no ground of question, since they stand upon the same footing in point of principle, as if an advance were made upon the credit of the new security: Okie vs. Spencer, 2 Wharton, 253; S. C., 2 Am. Lead. Cas. 232, and numerous cases there cited. These cases are so obvious upon principle, to the mind of all lawyers, that it would be a useless labor to attempt to render them more perspicu

there is nothing more obvious by which it can be illustrated.

II. In coming to the inquiry, what is the precise legal implication, from the mere fact of receiving a negotiable security without surrendering any of the former securities for an existing debt, we encounter more perplexity.

1. This will depend, undoubtedly, to a great extent upon the course of doing business, and the commercial usages of the place. From all we can learn of this commercial usage in England, judging both from the reported cases and the elementary works, we infer that each new security is there credited as so much cash at the time it is received, and is charged to the debtor, in case of dishonor, with the addition of expenses attending the protest: Poirier vs. Morris, 20 Eng. L. & Eq. R. 103; Bosanquet vs. Dudman, 1 Starkie, 1. In this last case Lord'Ellenborough said, "that whenever the acceptances exceed the cash balance the plaintiff holds all the collateral bills for value:" Ex parte Pease, 19 Vesey, 25. In this mode of transacting business, the new notes, or bills, from time to time remitted to the creditor by his debtor, are, upon receipt, passed to his credit, and thus virtually discounted. This, we apprehend, is the usual course of doing business, in this country, where one has an open account with banks or bankers, and not unfrequently with brokers. How far it obtains with merchants it is not very certain, depending upon the nature and the amount of the dealings. whenever the business is conducted in this form, there would be no difference as to the right of the creditor to hold the collaterals, whether they were taken in payment, or as security, or whether any advances in money were made at the precise time the collaterals were negotiated, since passing them to the credit of

But

the debtor as so much money, is strictly advancing the money upon them. This, we apprehend, is the true explanation of the reason why we find so little said, in the English cases, or treatises on bills and notes, in regard to these distinctions, which occupy so much space in our own reports. The case of The Bank of the Metropolis vs. The New England Bank, 1 How. U. S. R. 234, is precisely of this character, and the creditor was allowed to hold the collaterals free from all equities.

2. But in whatever mode the business is transacted, if we look carefully into the true principles involved, we shall come much to the same result. It has always seemed to us that most of the controversy upon this subject has grown out of the different sense in which the terms used are understood. If the term "collateral" is understood to import that the bills thus held are not taken on account of the existing debt, but only to be held until due, and, if paid, the amount to be applied, and, in the mean time, the creditor assumes no responsibility in regard to them, except as the mere agent of the debtor for collection, there could be no ground of claim that any property passed, or that existing equities in former parties were extinguished. The English cases in bankruptcy show very clearly that, in such cases, the title in the bills does not pass to the assignee, but may be retained by the correspondent: Ex parte Pease, 19 Vesey, 25; De La Chaumette vs. The Bank of England, supra.

3. But we apprehend this is not the ordinary acceptance of the term collateral, or collateral security; for it is no security at all. The etymology of collateral security indicates that it is something running along with, and, as it were, parallel to, something else, of a similar character. It is collateral to the origi

It is, of course, a se

nal indebtedness curity, but it need not be in the precise form of the original. A bond may be secured by a collateral indebtedness in the form of a bill or note, and vice versa, and the collateral will always include other parties. But as far as the debtor is concerned, they are holden for the payment of the debt, and the creditor equally at liberty to pursue all in all legal modes, unless there is some express or implied restriction upon the title of the collaterals.

In this sense the title passes, by the negotiation of a bill or note, as collateral, the same as if the money were advanced. The only difference is, that this form is dispensed with, and the creditor retains his original security. Ordinarily, the collateral may not bind the same parties as the original security, or not all of them. In such cases the creditor will wish to retain the original, so as to lose none of his security. All that the word collateral imports is, that there is a prior or existing debt, and the collateral depends upon that, stands or falls with it, so far as the creditor is concerned.

4. But if the party takes the indorsement of a bill of lading, or of a bill of exchange, or note, he acquires no different rights as to the parties to these new instruments, whether he takes them in payment, or as collateral to an existing debt. In either case he becomes a party to the transaction or contract to the fullest extent, and, in the case of negotiable instruments, is bound to pursue the law merchant in making demand and giving notice, at the peril of making them his own, in actual exoneration of the party negotiating them.

5. In such cases it can be of little importance whether the original debt is treated as extinguished or not, since, if the debtor negotiate the note or bill, by

b:3 own indorsement, which is the usual course, he is bound by such indorsement, and the double bond is of no essential importance. And if the creditor do not take steps to charge his debtor, as indorser, he makes the collateral his own in payment of his debt, and the result is the same, whether he is bound doubly or singly, since the release extinguishes both or one, as the case may be. 6. The mere giving of a negotiable note or bill for an existing debt, is only conditional payment, in any case, by the general law merchant, unless there is an express agreement that it shall extinguish the original debt. Upon the dishonor of the new note or bill, the creditor may sue the original debt, or the indorser of the new bill or note, at his election, so that the note or bill is but a collateral in any case, unless there is some special contract, or some special usage, as in the New England States, that the acceptance of the new note, or bill, shall, prima facie, extinguish the debt. These propositions are familiar, and scarcely require specific authority for their support. The cases are carefully collated, in 2 Am. Lead. Cas. 241-273.

III. Most of the conflict in the American cases, and all the English cases, will be readily reconciled by reference to the foregoing distinctions. And those anomalous cases in the American States, which will not come into these distinctions harmoniously, have been decided without properly apprehending the true principles involved, and must be left in their appropriate solitude until they are either abandoned, or else the course of business, or the principles of natural justice become so far modified, that they can be adopted by others.

1. In the case of Poirier vs. Morris, pra, Crompton, J., said: "Whether the bill was a collateral security, or whether it had the effect of suspending the pay

ment of the antecedent debt, is quite immaterial." And Lord Campbell said: "There is nothing to make a difference between this and the common case, where a bill is taken as security for a debt, and in that case an antecedent debt is a sufficient consideration." And in Percival vs. Frampton, 2 C. M. & R. 180, Parke, B., said: "If the note were given to the plaintiffs as security for a previous debt, and they held it as such, they might be properly stated to be holders for valuable consideration." The same rule is recognised in numerous other English cases: Heywood vs. Watson, 4 Bing. R. 496; Bosanquet vs. Forster, 9 C. & P. 659; Same vs. Corser, ib. 664; 2 Am. Lead. Cas. 250, 251. The rule is thus stated in the work last quoted, which has almost become a book of authority in the American courts. The result of the English cases would seem to be, that accepting a note or bill payable at a future day, on account of a pre-existing debt, will suspend the debt until the note reaches maturity: Byles on Bills, 6 ed. 304." "The law is clear," said Lord Kenyon, in Stedman vs. Groch, 1 Esp. R. 4, "that if in payment of a debt the creditor is content to take a bill or note payable at a future day, be cannot legally commence an action for his original debt, until such note or bill becomes payable, and default is made in the payment." And the cases all agree that no recovery can be had in any case, upon the original debt, where the collateral, given in security, was indorsed while current, and is still outstanding: Price vs. Price, 16 M. & W. 232, 243. And in every case where the party accepts a collateral as security for a previous debt then due, there is no implied obligation not to negotiate the collateral before maturity. In nine cases out of ten that is done, among business men immediately, for the purpose of raising the