The opinion
SEVERENS, District Judge
(concurring). The judges who sat on the former hearing of this cause having differed in opinion, a reargu *348 ment was ordered. The cause was again argued before the same judges and myself. As I understand, their difference in opinion no longer continues. The point presented for decision is an interesting one. Its disposition in the court below, where it was carefully considered, and the doubt it has encountered here, where a different conclusion has been reached, show that it is one of some difficulty. The facts are contained in the statement preceding the opinion of the presiding judge. I concur in that opinion, but think it right to state with somewhat more fullness, in some resjtects, the reasons for my concurrence.
The question to be determined is whether the petitioner, Mrs. Bead, is a bona fide holder for value of the four bonds which she holds, in such manner as to entitle her to recover notwithstanding the equities of the defendant company. The defendants say she is not, and allege two reasons for that conclusion: First, because she is affected by the knowledge of the fraudulent abstraction of the bonds possessed by Dahlgren, her agent, who was the principal participator therein; and, second, because, there having been no indorsement of the Morrow note by Dahlgren to Mrs. Bead, she is not the legal holder thereof in the commercial sense, but only an assignee, and therefore chargeable with the knowledge of her assignor; that her right to the bonds pledged can rise to no higher plane than her right in the principal obligation, and that it follows she cannot be a bona fide holder, without notice, of the bonds themselves.
As to the first ground, the judge who heard the case in the court below and my associates have all agreed that, in the circumstances of this case, Mrs. Bead is not chargeable with the knowledge possessed by Dahlgren. I feel bound to confess, with great deference to their judgments, that this question seems to me more difficult than the other one, to be presently considered; but I am inclined to agree with their view. Dahlgren had deserted his place as agent of Mrs. Bead, and had taken up a position opposed to her.. There could be no presumption of information of the principal through a channel which was closed, and there are no grounds for an estoppel. True, he also deserted his place as agent for the company, and the company would.not be chargeable with his misappropriation of their bonds by reason of his agency. But the bonds were in fact in his possession by the act of the company, and he had the power, though not the right, to put them off upon purchasers. They had once been issued by the company, and had never been paid or canceled, and on paying for his stock they were enforceable by Dahlgren, subject, perhaps, to participation with other creditors, if there were such. Assuming that Dahlgren’s relation to the company gave him no more right as against the company to dispose of the bonds than a mere stranger would have, who had access to the bonds by permission of the company, still it would remain that the abstraction and negotiation of the bonds to a bona fide purchaser for value would give a good title to the purchaser in either case. In the present case, therefore, I do not think Dahlgren was acting as the agent of either of the supposed principals, but, having possession of the bonds in *349 trusted to Mm by the defendant company, made the manual abstraction and tradition of them which brought them to the hands of an innocent holder.
Secondly. Is Mrs. Head chargeable with notice because the Morrow note was not indorsed to her, hut was assigned, merely? The condition of things was this: Morrow had made his note to Dahlgren, as trustee, or order, for $3,200. To that note he had attached a pledge of those four bonds, payable to bearer at a future date. To make the pledge effectual, Dahlgren must be supposed to have delivered the bonds to Morrow. Dahlgren took $3,200 of Mrs. Bead’s money, reported it to her as loaned to Morrow, and handed her the Morrow note, without indorsement, and also the pledged bonds, which were payable to bearer, and required no indorsement. To Mrs. Bead, however, the transaction was by the conduct of Dahlgren and Morrow made to wear the appearance of an advancement by way of loan to Morrow of $3,200, and the taking of his note for her benefit, though nominally to her trustee, for that amount, with a transfer to her of the bonds as collateral security for the payment of the note. The maker of the note must be treated as under an estoppel to deny that be received the money, or that he was liable therefor on the note. He knew that he was making a note to some person’s benefit, for whom the trustee took the bare title. He knew that what was being done necessarily implied that the $3,200 was in the payee’s hands as trustee, and so really belonged to the person whose trustee lie was. He knew, also, that the owner of tb*; money would suppose that the $3,200 had been delivered to him, Morrow. Indeed, he could not but understand that the purpose of producing that belief was the prime object of the thing be was doing. He knew be did not get that money, but that Dahlgren was paying him $25 for performing Ms part in putting up the false appearances to the owner of the money. Those appearances were relied upon, as it was expected they would be. It seems to me a perfectly clear case in which to say that Mrs. Bead could have brought suit in a court of law against Morrow upon his note in the name of the trustee, that the court would have protected her right to prosecute the suit to a recovery against any interference by Dahlgren, and that Morrow would have been estopped to deny his liability. It is said that she had merely an equitable interest in the note, and this is technically true. It was, however, but a shade off from a strictly legal interest, and the difference is of no substantial importance in the present case.
The fact which is important is that Mrs. Bead parted with her money, and received the Morrow note (whether acquiring the legal title therein by indorsement, or only an equitable title by transfer, is a matter of absolute indifference), and received also the four bonds in pledge as collateral security. She became the holder of the bonds as security for her debt. Whatever other means she may have had for its recovery, she undoubtedly bad the right to resort to the bonds. She had parted with her money; for its payment she had received, as collateral security, the bonds, before they were due, *350 and without any notice of anything wrong in their transfer’. On that state of facts, I take it to be entirely well settled that she is not affected by the equities of any prior holder of the bonds. See the last proposition affirmed in Goodman v. Simonds, 20 How. 343 . In that case the collateral note sued on was pledged, not to secure negotiable paper, but a debt found due from the pledgor upon a settlement between him and his creditor. It was held .that the latter was entitled to recover, notwithstanding the equities between the pledgor and the maker. The doctrine was also affirmed by each of the three justices who delivered opinions in Brooklyn, etc., R. Co. v. National Bank, 102 U. S. 16 , which was a suit upon collateral negotiable paper pledged to secure an antecedent debt having no quality of negotiability, and where the suit to recover upon the collateral was sustained against the equities of the maker. And see, also, Pugh v. Durfee, 1 Blatchf. 412 , Fed. Cas. No. 11,460; Bank v. Chapin, 8 Metc. (Mass.) 40; Stoddard v. Kimball, 6 Cush. 469 ; Bank v. Vanderhorst, 32 N. Y. 553 ; Curtis v. Mohr, 18 Wis. 645 . These cases vindicate the right of the holder of the collateral notes to recover, with-, out regard to the character of the debt they were pledged to secure, and show that the real question is whether there is a consideration for the pledge. The bonds are payable to bearer. The actual delivery of them from hand to hand transfers the title to them as absolutely as successive indorsements would have done, had they been payable to order. The proposition that the petitioner’s right in respect to the bonds is to be measured by the character of her right in the note they were given to secure, is not sustainable. The bonds are independent securities. The legal title was vested in Mrs. Read. She could recover thereon to the full amount of the bonds, if the maker had no defense against the pledgor, in which case the pledgee would stand as trustee for the securities to the pledgor in respect to the surplus; or, if'the maker had a defense against the pledgor, then her right of recovery would be limited to her own debt. And that, as I think, must be the result in this case. This was held in Bank v. Chapin, and Stoddard v. Kimball, above cited, and is stated to be the general rule in Daniel on Negotiable Instruments (section 832a,'3d Ed.).
What I think is the error from which the opposite conclusion is deduced consists in applying the rule which is applicable to nonnegotiable securities to those which are negotiable. In the former case the only quality of negotiability is that which is imparted to them from the nature of the principal debt. In the latter case they stand on their own footing, and retain the attributes of negotiability, though only pledged for a mere debt, which is not negotiable, at all. They do not take their character from the debt secured. It is enough that the debt is created or continued; or duties are assumed in regard to the paper pledged, to constitute one a holder for value. If he takes it without notice of any defect, and before its maturity, he may recover according te his interest. As I understand it, this is the well-settled doctrine of commercial law. Among many cases to that effect is that of Bank v. Vanderhorst, above cited, in the New *351 York court of appeals, where it was expressly decided that parties receiving negotiable paper as collateral security are entitled to be protected as bona fide holders to the same extent and under the same circumstances as parties who become owners of such paper. The suggestion that Morrow pledged the bonds to Dahlgren only for the payment of the note to him or his indorsee, stands upon too narrow ground. Morrow knew, not only from the face of the note, hut from the nature of the transaction, that Dahlgren was a mere agent for another who was furnishing the money, and that the principal could compel him to turn over the note, with the securities, to the principal. And Morrow must he held to have contemplated that Dahlgren might do this. When, therefore, he pledged the bonds in security for the note, he must have intended them to be security in the hands of the person entitled to reduce the note to possession, and to intend the transfer to that person for that purpose. The pledge was, in substance, to pay the money represented by the note, and whoever might; he or become the owner in law or equity of the debt would, if he was also the legal holder of the bonds, without notice of any defect therein, he entitled to enforce them without regard to any equities which might exist between the original parties. It follows that, in my opinion, the decree should he reversed, and the cause remanded, with directions to enter a decree for the petitioner that she share in the fund in proportion to the amount due upon the bonds, with interest, to the extent of the amount due her upon the Morrow note.