The liability of the pledgee may be founded on negligence as well as on breach of an express contract. A pledgee has a duty to use at least ordinary care in the preservation of the security pledged and in the protection of the pledgor's interest therein. Frey v. Farmers Mechanics Bank, 273 Mich. 284; W. F. Sheetz Co. v. Commonwealth Commercial State Bank, 282 Mich. 96; First National Bank of Blakely v. Hattaway, 172 Ga. 731 ( 158 S.E. 565, 77 A.L.R. 375); C. H. Larkin Co. v. Dawson, 37 Tex. Civ. App. 345 ( 83 S.W. 882); Amick v. Empire Trust Co., 317 Mo. 157 ( 296 S.W. 798, 53 A.L.R. 1064); Semple Birge Manfg. Co. v. Detwiler, 30 Kan. 386 ( 2 P. 511); Johnson v. First Nat'l Bank of Shellman, 53 Ga. App. 56 ( 184 S.E. 915). The failure of the pledgee to sell the stock upon request may not necessarily be a breach of his duty.
R. E. McKie, for appellant. — Regardless of any contract as to where the collateral was to be kept, it was the duty of appellant to look after, protect and collect same in like manner that an ordinarily prudent owner of like paper would have done under the circumstances, and appellant was entitled to reasonable expenses incurred in so doing. 22 Am. Eng. Ency. Law (2d ed.), pp. 899, 901, 905; Colebrook on Collateral Securities, pp. 174-6, 173, note a; Hanover Natl. Bank v. Brown, 53 S.W. 215; Larkin v. Dawson, 37 Texas Civ. App. 345[ 37 Tex. Civ. App. 345]. Appellant was entitled to recover from appellee and retain from the proceeds of said collateral such sum as it was reasonably necessary to expend in the protection and collection thereof. 22 Am. Eng. Ency. Law, pp. 870, 905; Colebrook on Collateral Security, p. 230, secs. 128, 173, note a; Mansur-Tebbetts Imp. Co. v. Carey, 45 S.W. 120; Hanover Natl. Bank v. Brown (Tenn.), 53 S.W. 215.
If, by the negligent failure of the plaintiffs to collect the Burrows notes when they matured, the same became uncollectable, then the plaintiffs became liable to defendant for the amount of the notes. Douglas v. Mundine, 57 Tex. 344; C. H. Larkin Co. v. Dawson, 37 Tex. Civ. App. 345, 83 S.W. 882; Norvell-Shapleigh Hwd. Co. v. Lumpkin (Tex.Civ.App.) 150 S.W. 1194. Whether the plaintiff was negligent in collecting the notes is an issue of fact.
Notwithstanding it appeared on the trial that appellee held the $7,000 note as collateral security only, it nevertheless had the right to sue upon it, as would any other holder of negotiable paper, and, in the absence of applicable defenses, to collect the full amount of such collateral note according to its terms, and, out of the proceeds, pay the secured indebtedness, and hold the surplus, if any, in trust for the real owner. Williams v. Lumpkin, 74 Tex. 601, 12 S.W. 488; Thomson v. Findlater Hardware Co. (Tex.Civ.App.) 156 S.W. 301; Forty Acre Co. V. Bank (Tex.Civ.App.) 111 S.W. 417; Larkin v. Dawson, 37 Tex. Civ. App. 345, 83 S.W. 882; Sanderson v. Railey (Tex.Civ.App.) 47 S.W. 667.
"The rights and duties of parties to a pledge of securities for the payment of a debt may of course be fixed by agreement as to the manner in which they are to be collected, but as a general rule not only is it the right of the holder of a collateral security to collect the money thereon and apply it to the principal debt, but his duties in this respect are active, and he is bound to ordinary diligence to preserve the legal validity and pecuniary value of the pledge, and if by negligence, wrongful act or omission on his part loss is sustained, it must be borne by him. If the person with whom negotiable paper is left as collateral security neglects to make presentment thereof when due, or fails to give due notice to bind the parties to it, or does not use due diligence in making the collection, so that by reason of his neglect the paper becomes worthless, it is generally held that he will be liable for the loss of the pledgor." A case very closely in point is that of Larkin v. Dawson, 37 Tex. Civ. App. 345, 83 S.W. 882, by the Court of Civil Appeals at San Antonio. That was a case in which the defendant at the time he executed a note sued upon deposited with the plaintiff a note of a third person as collateral security, and at the time such collateral note matured the maker was amply able to pay the same, but the plaintiff was negligent in failing to collect it, and the amount thereof was lost by the maker's subsequent insolvency.