26

a construction, be held to be a pledge. This is sometimes a nice question, and in solving it the courts will look to the real intention and understanding of the parties rather than to the name used by the parties themselves to designate the transaction. Since in a pledge possession must pass, while in a chattel mortgage it either may or may not pass, where personal property is given as security for a debt or engagement, accompanied by a change of possession, the law strongly favors the conclusion that it was intended as a pledge and not as a mortgage."1

Sale and Pledge Distinguished

The distinction between a sale, in which the title or ownership of goods passes, and a bailment, in general, was pointed out at some length in the first chapter.28 An absolute bill of sale, however, accompanied by a delivery of the goods, may be shown, even by parol evidence, to be only a pledge, if such was the intention of the parties.29 The necessity of distinguishing between a sale and a

26 Bank of British Columbia v. Marshall (C. C.) 11 Fed. 19; Woodworth v. Morris, 56 Barb. (N. Y.) 97.

27 Luckett v. Townsend, 3 Tex. 119, 49 Am. Dec. 723; Wilson v. Brannan, 27 Cal. 258, 271; Lewis v. Varnum, 12 Abb. Prac. (N. Y.) 305, 308; Warren v. Emerson, 1 Curt. 239, 241, Fed. Cas. No. 17,195; West v. Crary, 47 N. Y. 423, 425; Woodworth v. Morris, 56 Barb. (N. Y.) 97, 104; Bank of British Columbia v. Marshall (C. C.) 11 Fed. 19. A pledge need not be recorded as a chattel mortgage. First Nat. Bank of Cincinnati v. Kelly, 57 N. Y. 34; Parshall v. Eggert, 54 N. Y. 18; Griffin v. Rogers, 38 Pa. 382; McCready v. Haslock, 3 Tenn. Ch. 13; Shaw v. Wilshire, 65 Me. 485; Harris v. Birch, 9 Mees. & W. (Eng.) 591; Ward v. Sumner, 5 Pick. (Mass.) 59; Wright v. Bircher, 5 Mo. App. 322; Langdon v. Buel, 9 Wend. (N. Y.) 80; Atwater v. Mower, 10 Vt. 75.

28 Ante, § 3.

29 Barber v. Hathaway, 169 N. Y. 575, 61 N. E. 1127; Skenandoa Cotton Mills v. Lefferts, 59 Hun, 620, 13 N. Y. Supp. 33; Thompson v. Dolliver, 132 Mass. 103; Oakland Cemetery Ass'n v. Lakins, 126 Iowa, 121, 101 N. W. 778, 3 Ann. Cas. 559; Keeler v. Commercial Printing Co., 16 Wash. 526, 48 Pac. 239; Walker v. Staples, 5 Allen (Mass.) 34; Whitaker v. Sumner, 20 Pick. (Mass.) 399; Hazard v. Loring, 10 Cush. (Mass.) 267; Kimball v. Hildreth, 8 Allen (Mass.) 167; Bright v. Wagle, 3 Dana (Ky.) 252; Ex parte Fitz, 2 Lowell, 519, Fed. Cas. No. 4,837; Newton v. Fay, 10 Allen (Mass.) 505; Jones v. Rahilly, 16 Minn. 320 (Gil. 283); Shaw v. Wilshire, 65 Me. 485; Morgan v. Dod, 3 Colo. 551; Blodgett v. Blodgett, 48 Vt. 32. See, also, Colburn v. Commercial Security Co., 172 Ill. App. 510. But there may be a conditional bill of sale, which will be a mortgage when such is the intention of the parties. Brown v. Bement, 8 Johns. (N. Y.) 96; Clark v. Henry, 2 Cow. (N. Y.) 324; Milliken v. Dehon, 27 N. Y. 364; Homes v. Crane, 2 Pick. (Mass.) 607; Fraker v. Reeve, 36 Wis. 85; Wood v. Dudley, 8 Vt. 430; Murdock v. Columbus Ins. & Banking Co., 59 Miss. 152; Gregory v. Morris, 96 U. S. 619, 24 L. Ed. 740; Laflin & R. Powder Co. v. Burkhardt, 97 U. S. 110, 24 L. Ed. 973. In the same way, a bill of sale, with an agreement to repurchase, may be either a pledge or chattel mortgage, according to the circumstances and intention

pledge often arises when goods or securities are assigned by a debtor to a creditor.30 Here, in doubtful cases, the law always leans towards the presumption that the transfer was intended by the. debtor merely as a pledge created as security for the indebtedness and not as an absolute transfer of title to the goods in payment of the debt.81

Collateral Security

The term "collateral security" has come into quite frequent use of late to designate pledges of incorporeal personalty, and, when so used, it distinguishes in general the business of the banker from that of the pawnbroker.32 As thus used, the term is convenient and unobjectionable. Unfortunately, however, it is loosely applied to mortgages either of realty or personalty, and is often improperly used in still other senses.

THE NATURE OF THE RELATION

71. In addition to those circumstances that are essential to any bailment, for the establishment of a pledge there must be: (a) Mutual assent of the parties.

(b) A debt or engagement secured.

Pledges must Arise out of Contract

Pledges cannot be created by operation of law, as such a situation is precluded by their very nature. They can therefore arise only by the mutual assent of the parties, express or implied. As a pledge is, of course, a bailment, what has already been said

of the parties. Hines v. Strong, 46 How. Prac. (N. Y.) 97; Bright v. Wagle, 3 Dana (Ky.) 252.

20 Standen v. Brown, 83 Hun, 610, 31 N. Y. Supp. 535.

31 Delaware County Trust, Safe Deposit & Title Ins. Co. v. Haser, 199 Pa. 17, 48 Atl. 694, 85 Am. St. Rep. 763; Butler v. Rockwell, 14 Colo. 125, 23 Pac. 462; Jones v. Johnson, 3 Watts & S. (Pa.) 276, 38 Am. Dec. 760; Perit v. Pittfield, 5 Rawle (Pa.) 166; Leas v. James, 10 Serg. & R. (Pa.) 307; Eby v. Hoopes, 1 Penny. (Pa.) 175.

82 Jones, Collateral Securities (3d Ed.) § 1; Brooklyn City & N. R. Co. v. National Bank of the Republic, 102 U. S. 14, 26 L. Ed. 61; In re Athill, L. R. 16 Ch. D. (Eng.) 211, 223; Mitchell v. Roberts (C. C.) 17 Fed. 776.

83 Penney v. Lynn, 58 Minn. 371, 59 N. W. 1043; Chambersburg Ins. Co. v. Smith, 11 Pa. 120, 127. This broad definition is also given by Black, Bouvier, Webster, and Worcester.

84 Mead v. Bunn, 32 N. Y. 275; Taylor v. Jones, 3 N. D. 235, 55 N. W. 593; Wilkinson v. Misner, 158 Mo. App. 551, 138 S. W. 931; Farson v. Gilbert, 114 Ill. App. 17.

of contracts creating a bailment is equally applicable here.5 In connection with pledges, the general rules of agency, partnership, and corporations also are frequently applied.

Nature of the Debt or Engagement Secured

In a pledge, unlike all other bailments, the bailment is created, not for itself alone, but in order to secure the performance of some other undertaking. This undertaking which the pledge is created to secure is determined by the contract of the parties and varies accordingly. It is immaterial whether the debt or engagement for which the security is given is that of the pledgor, or of some other person; for, if there is an assent by all the proper parties, it is equally binding in each case. It may be delivered as security for a future as well as for a past 38 debt or engagement; for one or for many debts and engagements; upon condition, or absolutely; for a limited time, or for an indefinite period. A pledge may

87

85 Ante, § 8.

89

40

30 A liability for another on a contract still in force is a sufficient consideration for a pledge, and the ratio of the consideration to the value of the thing pledged is of no importance. Jewett v. Warren, 12 Mass. 300, 7 Am. Dec. 74. When a third person pledges his property as security for the payment of a debt or obligation of another, such property will occupy the same position as that of surety of the debtor, and any change in the contract of suretyship which would discharge a surety will release and discharge property so held as collateral. Price v. Dime Sav. Bank, 124 Ill. 317, 15 N. E. 754, 7 Am. St. Rep. 367. The drawer of a note can pledge property to secure. an accommodation acceptor, and also to protect the future holder of the note. Britton v. Harvey, 47 La. Ann. 259, 16 South. 747.

37 Brown v. James, 80 Neb. 475, 114 N. W. 491; Moors v. Washburn, 147 Mass. 344, 17 N. E. 884; Didier v. Patterson, 93 Va. 534, 25 S. E. 661; Leonard v. Kebler's Adm'r, 50 Ohio St. 444, 34 N. E. 659; Merchants' Nat. Bank of Savannah v. Demere, 92 Ga. 735, 19 S. E. 38; Clymer v. Patterson, 52 N. J. Eq. 188, 27 Atl. 645. Or for future advances. Merchants' Nat. Bank of Whitehall v. Hall, 83 N. Y. 338, 38 Am. Rep. 434; Stearns v. Marsh, 4 Denio (N. Y.) 227, 47 Am. Dec. 248; Badlam v. Tucker, 1 Pick. (Mass.) 389, 398, 11 Am. Dec. 202; Jewett v. Warren, 12 Mass. 300, 7 Am. Dec. 74; Macomber v. Parker, 14 Pick. (Mass.) 497; Holbrook v. Baker, 5 Greenl. (Me.) 309, 17 Am. Dec. 236; Eichelberger v. Murdock, 10 Md. 373, 69 Am. Dec. 140; Wolf v. Wolf, 12 La. Ann. 529; Smithurst v. Edmunds, 14 N. J. Eq. 408; D'Wolf v. Harris, 4 Mason, 515, Fed. Cas. No. 4,221; Conard v. Atlantic Ins. Co., 1 Pet. 386, 448, 7 L. Ed. 189.

38 Conard v. Atlantic Ins. Co., 1 Pet. (U. S.) 386, 448, 7 L. Ed. 189; Stearns v. Marsh, 4 Denio (N. Y.) 227, 47 Am. Dec. 248; Badlam v. Tucker, 1 Pick. (Mass.) 389, 398, 11 Am. Dec. 202; Holbrook v. Baker, 5 Greenl. (Me.) 309, 17 Am. Dec. 236; D'Wolf v. Harris, 4 Mason, 515, Fed. Cas. No. 4,221; Hanover Nat. Bank v. Brown (Tenn. Ch. App.) 53 S. W. 206.

39 Mechanics' & Traders' Bank v. Livingston, 6 Misc. Rep. 81, 26 N. Y. Supp. 25; Jones v. Merchants' Nat. Bank, 72 Hun, 344, 25 N. Y. Supp. 660.

40 Shirras v. Caig, 7 Cranch, 34, 3 L. Ed. 260; Hendricks v. Robinson, 2 Johns. Ch. (N. Y.) 283, 309; Stevens v. Bell, 6 Mass. 339.

also be made a continuing security, which will apply to any future transaction between the parties that is within the limits of the original pledge agreement." The contract secured by the pledge is not confined to an engagement for the payment of money; but a pledge is susceptible of being applied to any other lawful contract whatever. Pledges to secure contracts other than for the payment of money, however, are quite rare.

In all cases the pledge is understood to be a security both for the whole and for every part of the debt or engagement, unless it is otherwise stipulated between the parties. The payment or discharge of a part of the debt or engagement, therefore, still leaves it a perfect pledge for the residue. The pledge may, however, be

created to secure a part only of a debt.**

When new agreements are made, which are clearly intended by the parties, either tacitly or expressly, to be attached to the pledge, the pledgee has, of course, a title and right of possession as to the pledged goods coextensive with the new engagements." But neither the mere existence of a former debt 5 between the parties nor the creation of a future one ** authorizes the pledgee to detain

41 Fidelity Mut. Life Ins. Co. v. Germania Bank, 74 Minn. 154, 76 N. W. 968; Merchants' Nat. Bank of Whitehall v. Hall, 83 N. Y. 338, 38 Am. Rep. 434; Norton v. Plumb, 14 Conn. 512.

42 Baldwin v. Bradley, 69 Ill. 32; Ellis v. Conrad Seipp Brewery Co., 207 III. 291, 69 N. E. 808; Williams v. National Bank of Baltimore, 72 Md. 441, 20 Atl. 191.

43 Fridley v. Bowen, 103 Ill. 633, 637.

44 Moors v. Washburn, 147 Mass. 344, 17 N. E. 884; Smith v. Denison, 101 Ill. 531.

45 Jarvis v. Rogers, 15 Mass. 389; Allen v. Megguire, 15 Mass. 490; Robinson v. Frost, 14 Barb. (N. Y.) 536; President, etc., of Neponset Bank v. Leland, 5 Metc. (Mass.) 259; James' Appeal, 89 Pa. 54; Russell v. Hadduck, 3 Gilman (Ill.) 233, 238, 44 Am. Dec. 693; Baldwin v. Bradley, 69 Ill. 32; St. John v. O'Connel, 7 Port. (Ala.) 466; Gilliat v. Lynch, 2 Leigh (Va.) 493; Mahoney v. Caperton, 15 Cal. 314; Bank of Metropolis v. New England Bank, 1 How. 234, 11 L. Ed. 115; Boughton v. United States, 12 Ct. Cl. 330; Thompson v. Dominy, 14 Mees. & W. (Eng.) 403; Vanderzee v. Willis, 3 Brown, Ch. (Eng.) 21; Brandao v. Barnett, 3 C. B. (Eng.) 519, 530; In re Meadows, 28 Law J. Ch. (Eng.) 891; Walker v. Birch, 6 Term R. (Eng.) 258; Rushforth v. Hadfield, 7 East (Eng.) 224; Green v. Farmer, 4 Burrows (Eng.) 2214; Buckley v. Garrett, 60 Pa. 333, 100 Am. Dec. 564; Philler v. Jewett, 166 Pa. 456, 31 Atl. 204. Where a judgment is given as collateral security for a note which is afterwards paid, a parol agreement between the creditor and the agent of the debtor to continue such judgment as security for certain other notes of the debtor is valid against subsequent judgment creditors of such debtor without notice. Merchants' Nat. Bank v. Mosser, 161 Pa. 469, 29 Atl. 1.

46 Midland Co. v. Huchberger, 46 Ill. App. 518; Searight v. Carlisle Deposit Bank, 162 Pa. 504, 29 Atl. 783; Baldwin v. Bradley, 69 Ill. 32; Adams v. Sturges, 55 Ill. 468; Gilliat v. Lynch, 2 Leigh (Va.) 493. Of course, such new loan is secured by the goods already pledged when the new loan was made

the pledged goods as a security for such past or future debt, when the goods have been put into his hands for another debt or contract, unless there is some just presumption that such was the intention of the parties. If the debt secured bears interest, the pledge secures the payment not only of the principal but also of such interest. And when a pledge is made it continues effectual until the debt secured is paid or discharged, notwithstanding the evidence of the debt is changed from a promissory note to a judgment of a court of record thereon.48 Ordinarily the pledge secures any renewal of the original debt.""

47

Legality of the Debt or Engagement Secured

Even though the debt which the pledge is given to secure is void on account of illegality of consideration, the pledge is nevertheless effectual. The pledgee, of course, cannot recover on the debt itself, yet he can retain the pledge until the debt is paid." This is on the ground, not that the law in such case confers a positive right on the pledgee, but rather denies the pledgor, under the principle "in pari delicto potior est conditio defendentis," the privilege of setting up an illegal transaction to which he was himself a party, in order to recover goods, the possession of which he has transferred to another by virtue of such illegal transaction.51

The pledgor cannot, therefore, recover possession of the goods without paying the debt, because in order to establish his case he would have to set up his own wrong. When, however, the pledgor pays or tenders the amount of the illegal debt to the pledgee, the latter must deliver up the goods." The pledgee would not be al

on the credit of the pledge. Van Blarcom v. Broadway Bank, 9 Bosw. (N. Y.) 532; Id., 37 N. Y. 540; Smith v. Dennison, 101 Ill. 531; Buchanan v. International Bank, 78 Ill. 500.

47 Boardman v. Holmes, 124 Mass. 438; Charles v. Coker, 2 S. C. 122; Hamilton v. Wagner, 2 A. K. Marsh. (Ky.) 331.

48 Robinson & Co. v. Stiner, 26 Okl. 272, 109 Pac. 238; Fisher v. Fisher, 98 Mass. 303; Jenkins v. International Bank, 111 Ill. 462; Everman v. Hyman, 3 Ind. App. 459, 29 N. E. 1140; Jones v. Scott, 10 Kan. 33.

49 Cotton v. Atlas Nat. Bank, 145 Mass. 43, 12 N. E. 850; Miller v. McCarty, 47 Minn. 321, 50 N. W. 235, 28 Am. St. Rep. 375; First Nat. Bank of Emmetsburg v. Gunhus, 133 Iowa, 409, 110 N. W. 611, 9 L. R. A. (N. S.) 471. 50 King v. Green, 6 Allen (Mass.) 139.

51 Taylor v. Chester, L. R. 4 Q. B. (Eng.) 309 (pledge to secure debt contracted for wine and suppers supplied in a bawdyhouse); King v. Green, 6 Allen (Mass.) 139 (pledge of watch to secure payment of an illegal debt incurred for use of horse and wagon on Sunday). See, also, Curtis v. Leavitt, 15 N. Y. 9; Beecher v. Ackerman, 1 Abb. Prac. N. S. (N. Y.) 141; Roosevelt v. Dreyer, 12 Daly (N. Y.) 370.

52 Jones, Collateral Securities, § 354. See, also, the opinion of Mellor, J., in Taylor v. Chester, cited in the preceding note, though there the pledgor was suing to recover the pledged article without payment of the debt secured.