75. Rights and Duties of the Pledgor.

76. Rights and Duties of the Pledgee as Affected by Pledgor's Default.

77. Rights and Duties of the Pledgee Before Default-Assignability of the Pledgee's Interest.

78.

79.

80.

81.

82.

83.

84.

85.

86.

87.

88.

Relative Title Acquired by the Pledgee.

Special Property of Pledgee in Pledged Goods-Right to Bring Suit.
Right to Use the Pledged Goods.

Profits of the Thing Pledged.

Expenses About the Thing Pledged.

Degree of Care Required of the Pledgee.

Redelivery of the Pledged Goods.

Rights and Duties of the Pledgee After Default-In General.
Holding the Pledged Goods.

Suit on the Debt or Engagement Secured.

Sale of the Pledged Goods.

89. Termination of the Pledge.

DEFINITIONS AND DISTINCTIONS

70. A pledge or pawn is a bailment to secure the payment of a debt, or the performance of an engagement, accompanied by a power of sale in case of default.

Historical

The practice of giving possession of a chattel by the owner to another to secure a debt or to insure the performance of some engagement is of great antiquity, and laws governing such pawns or pledges are to be found among all the nations of ancient times. Thus more or less elaborate provisions on this subject are found in the Israelitic code of Moses,' the monumental Babylonian code

1 Thus provisions are found in the earliest of these codes, in the Book of the Covenant, a part of the so-called JE Code. "If thou at all take thy neighbor's raiment to pledge, thou shalt deliver it unto him by that the sun goeth down." Exodus, xxii, 26. Further humanitarian restrictions are found in the code of Deuteronomy. Deut. xxiv, 6, 10–13.

of Hammurabi and in other codes of the Orient. In England, the law of pledges was of little practical importance until 1546, when, for the first time, the taking of interest on money loans was made legal. Since then, however, the English law of pledges has received a tremendous development, and to-day, both in England and the United States, the pledge is among the most frequent and important of commercial transactions.

Pawnbrokers are those who make a business of loaning money on the security of corporeal property, rather than incorporeal property, such as corporate stock. In many countries, as in France, the business of pawnbroking is carried on as a public institution, so that money may be borrowed by the poor at a reasonable rate of interest. In England and in the United States, however, it is carried on, just as any other enterprise, by individuals; but in almost all of the states of this country the business is to a greater or less degree regulated by special statutes."

Definitions

As in the case of other bailments, many and various definitions of a pledge or pawn have been given. Those that follow are among the most important. Lord Holt defines it as existing "when goods or chattels are delivered to another, to be a security to him for money borrowed of him by the bailor." By Sir William Jones" it is defined to be "a bailment of goods by a debtor to his creditor, to be kept by him till his debt is discharged." Both of these definitions, however, are faulty in two respects. First, they fail to recognize the fact that the pledge need not be solely to secure the payment of money, but it may be created for the purpose of insuring the performance of any other lawful engagement on the part of the bailor, or even to secure the undertaking of a third party, on whose account the bailor has made the bailment; and, secondly, neither states that there is in a pledge an implied power of sale

2 See Cook, The Laws of Moses and the Code of Hammurabi, p. 232 et seq. According to Lee, Historical Jurisprudence, p. 30, "the Babylonians pledged property of every description."

See Lee, Historical JuLee, pp. 146-150.

3 Pledges were known to the early law of Egypt. risprudence, pp. 71-74. The same is true of India. 4 City of Chicago v. Hulbert, 118 Ill. 632, 8 N. E. 812, 59 Am. Rep. 400; Schaul v. City of Charlotte, 118 N. C. 733, 24 S. E. 526. See, also, Rev. St. Ohio 1880, § 4387.

These statutes usually cover the rate of interest which a pawnbroker may charge and the formalities of a sale of the pledged article. A typical statute is that of Virginia. Pollard's Va. Code 1904, vol. 2, pp. 2232-2235. 6 In COGGS v. BERNARD, 2 Ld. Raym. (Eng.) 909, 913, Dobie Cas. Bailments and Carriers, 1.

7 Bailm. § 35.

on default. This implied power of sale is an important element in distinguishing a pledge from other transactions that lie close to it, such, for example, as a lien. The definitions of more modern writers are given in the notes.

8

In a number of states, pledges have been defined by statute. Thus, in California, "a pledge is a deposit of personal property by way of security for the performance of another act." And this definition has been copied by the codes of North Dakota,1o South Dakota,11 and Montana.12 Other definitions are found in other

codes.13

Lien, Pledge, and Chattel Mortgage Distinguished

Pledges are most nearly allied to liens and to chattel mortgages. It therefore becomes necessary to distinguish clearly between them. The lien and pledge are similar, in that the general property or ownership of the goods does not pass either to the lienholder or to the pledgee, but in each case a special property in the goods does.

Thus Story (Bailm. § 286) defines a pledge broadly as "a bailment of personal property as security for some debt or engagement." Substantially similar is Mr. Schouler's definition, as "the bailment of a chattel as security for some debt or engagement." Judge L. A. Jones (Jones on Collateral Securities [3d Ed.] § 1) defines a pledge as "a deposit of personal property as security, with an implied power of sale on default." See, also, Black, Law Dict. "Pledge," p. 905; 31 Cyc. 785, and note, giving various definitions.

In the Roman law a pledge or pawn is called "pignus," but it was the rule of the civil law that a pledge could never be sold, unless authorized by special agreement, except under a judicial sentence; and this appears to be the law at this day in many countries in Europe, and it was the rule in the old English law in the time of Glanville. Lib. 10, cc. 1, 6; Hart v. Ten Eyck, 2 Johns. Ch. (N. Y.) 62. In the Roman law, also, a pawn (pignus) was distinguished from a hypothecation (hypotheca), in this: That in the former alone was the possession delivered to the pledgee; in the latter, it was retained by the pledgor, and was thus not a bailment at all. However, the words "pignus" and "hypotheca" seem often to have been confounded. See, also, Jackson v. Kincaid, 4 Okl. 554, 46 Pac. 587; FIRST NAT. BANK OF PARKERSBURG v. HARKNESS, 42 W. Va. 156, 24 S. E. 548, 32 L. R. A. 408, Dobie Cas. Bailments and Carriers, 109; Farson v. Gilbert, 114 Ill. App. 17.

Civ. Code Cal. 1906, § 2986.

10 Rev. Codes N. D. 1905, §§ 6193, 6194.

11 Civ. Code, § 2104.

12 Civ. Code 1895, §§ 3890, 3891 (Rev. Codes, §§ 5774, 5775).

18 Thus in Georgia (Code Ga. 1882, § 2138), the following definition is given: "A pledge or pawn is property deposited with another as security for the payment of a debt. Delivery of the property is essential to this bailment, but promissory notes and evidences of debt may be delivered in pledge. The delivery of title deeds creates no pledge." The Louisiana law is that "the pledge is a contract by which one debtor gives something to his creditor as a security for his debt." Rev. Civ. Code La. 1870, art. 3133. See, also, 1 Stimson, Am. Stat. Law, p. 520.

The two transactions, however, present two striking points of difference: First, the rights of the lienholder are personal to him, and he may not transfer them to a third person; 14 while, in the case

15

of a pledgee, his interest is freely assignable, even without the consent of the pledgor. Secondly, though the lienholder can hold the goods against all the world, until the debt secured by the lien is paid, his rights at common law are limited to such a holding, and he has (in the absence of a statute to that effect) no power to sell the goods to which his lien attaches; 10 while one of the most important incidents of the pledge is the power of the pledgee to sell the goods on the default of the pledgor.1

In the case of a chattel mortgage, the legal title to the thing passes to the mortgagee,18 either with or (what is probably more frequent) without possession passing to the mortgagee. But this legal title of the mortgagee will be defeated on the payment of the debt within the stipulated time by the mortgagor. In the case of a pledge, the title to the goods remains in the pledgor,20 while possession of the goods 21 and a special property 22 therein pass to

19

14 Upon this point it was said by Lord Ellenborough, C. J., in McCombie v. Davies, 7 East (Eng.) 6, that "nothing could be clearer than that liens were personal, and could not be transferred to third persons by any tortious pledge of the principal's goods." If the one having the lien parts with the posses

sion of the goods, unless, indeed, to one who is his own agent, and with the intent that such agent shall have merely the custody of them, he thereby loses his lien. See the opinions of Cockburn, C. J., in Donald v. Suckling, L. R. 1 Q. B. (Eng.) 585, 617, and Buller, J., in the celebrated case of Lickbarrow v. Mason, 6 East (Eng.) 21.

15 See post, § 77.

16 Chief Justice Gibbs, in Pothonier v. Dawson, Holt, N. P. (Eng.) 383, 385, said: "Undoubtedly, as a general proposition, a right of lien gives no right to sell the goods. But, when goods are deposited by way of security to indemnify a party against a loan of money [a pledge], the lender's rights are more extensive than such as accrue under an ordinary lien in the course of trade." In order to sell, the lienor must resort to a judicial proceeding and sell under a decree from the court.

17 See post, § 88.

18 Walker v. Smith, 5 B. & Ald. (Eng.) 439; Hyams v. Bamberger, 10 Utah, 3, 36 Pac. 202; FIRST NAT. BANK OF PARKERSBURG v. HARKNESS, 42 W. Va. 156, 24 S. E. 548, 32 L. R. A. 408, Dobie Cas. Bailments and Carriers, 109; Palmer v. Mutual Life Ins. Co. of New York, 114 Minn. 1, 130 N. W. 250, Ann. Cas. 1912B, 957.

19 Jones, Chattel Mortgages (5th Ed.) § 426; Lickbarrow v. Mason, 6 East (Eng.) 22; Sheridan v. Presas, 18 Misc. Rep. 180, 41 N. Y. Supp. 451; Union Trust Co. v. Rigdon, 93 Ill. 458.

20 This is involved in the definition of a pledge, and constitutes the chief distinction between a pledge and a sale. Unless the title thus remained in the pledgor, the pledge would not be a bailment. See, also, Harding v. Eldridge, 186 Mass. 39, 71 N. E. 115.

21 Post, § 74.

22 Post, § 79.

the pledgee. However, until the expiration of the time within which the pledgor may regain possession of the goods by the payment of his debt or the performance of his engagement, the pledgee is nothing more than a bailee of the goods.23 In other words, the situation (before default by the debtor) is this: In a chattel mortgage, a defeasible title must pass, and possession of the chattel either may or may not pass; in a pledge, no title passes, but possession and a special property in the chattel must pass. Again: After default by the debtor in a chattel mortgage, the title of the mortgagee (hitherto defeasible) now becomes absolute at law 24 (though the mortgagor ordinarily has a right in equity to redeem); but, in a pledge, default by the debtor never confers an absolute title in the chattel on the pledgee, but merely operates to give him the right to sell the chattel.25

In cases in which it is not clear whether the transaction in question is a mortgage or a pledge, it will, if the facts will bear out such

28 Post, § 76.

24 Lickbarrow v. Mason, 6 East (Eng.) 21, 25; Sims v. Canfield, 2 Ala. 555; Brown v. Bement, 8 Johns. (N. Y.) 96; McLean v. Walker, 10 Johns. (N. Y.) 471; Eastman v. Avery, 23 Me. 248; Day v. Swift, 48 Me. 368; Gleason v. Drew, 9 Greenl. (Me.) 79, 82; Haven v. Low, 2 N. H. 13, 9 Am. Dec. 25; Ash v. Savage, 5 N. H. 545; Lewis v. Stevenson, 2 Hall (N. Y.) 76, 98; Homes v. Crane, 2 Pick. (Mass.) 607, 610; Ward v. Sumner, 5 Pick. (Mass.) 59, 60; Bonsey v. Amee, 8 Pick. (Mass.) 236.

25 Said Willes, J., distinguishing the lien, chattel mortgage, and pledge in Halliday v. Holgate, L. R. 36 Ch. (Eng.) 299, 302: "There are three kinds of security: The first, a simple lien; the second, a mortgage, passing the property out and out; the third, a security intermediate between a lien and a mortgage, viz., a pledge, where by contract a deposit of goods is made the security for a debt, and the right to the property vests in the pledgee so far as is necessary to secure the debt." See, also, Palmer v. Mutual Life Ins. Co. of New York, 114 Minn. 1, 130 N. W. 250, Ann. Cas. 1912B, 957; Hyams v. Bamberger, 10 Utah, 3, 36 Pac. 202; FIRST NAT. BANK OF PARKERSBURG v. HARKNESS, 42 W. Va. 156, 24 S. E. 548, 32 L. R. A. 408, Dobie Cas. Bailments and Carriers, 109; Jones v. Smith, 2 Ves. Jr. (Eng.) 372; Ryall v. Rolle, 1 Atk. (Eng.) 165; Cortelyou v. Lansing, 2 Caines, Cas. (N. Y.) 200; Barrow v. Paxton, 5 Johns. (N. Y.) 258, 4 Am. Dec. 354; Strong v. Tompkins, 8 Johns. (N. Y.) 98; McLean v. Walker, 10 Johns. (N. Y.) 471; Wilson v. Little, 2 N. Y. 443, 51 Am. Dec. 307; Haskins v. Kelly, 1 Rob. (N. Y.) 160; Parshall v. Eggart, 52 Barb. (N. Y.) 367; Winchester v. Ball, 54 Me. 558; Walcott v. Keith, 22 N. H. 196; Whittle v. Skinner, 23 Vt. 531; Wright v. Ross, 36 Cal. 414; Heyland v. Badger, 35 Cal. 404; Dewey v. Bowman, 8 Cal. 145; Waldie v. Doll, 29 Cal. 556; Goldstein v. Hort, 30 Cal. 372; Gay v. Moss, 34 Cal. 125; Ponce v. McElvy, 47 Cal. 154; Meyerstein v. Barber, L. R. 2 C. P. (Eng.) 38, 51; Id., L. R. 4 H. L. 317; Ratcliff v. Davies, Cro. Jac. (Eng.) 244; Tannahill v. Tuttle, 3 Mich. 104, 61 Am. Dec. 480; Bryson v. Rayner, 25 Md. 424, 90 Am. Dec. 69.

DOB.BAILM.—12