Casey v. Cavaroc

after stating the case, delivered the opinion of the court.

The substance of the agreement in this case, so far as neces.sary tó be considered, was, that the Credit Mobilier should accept the drafts of the banking association to the amount of ■a million of francs at ninety days, the bank agreeing to furnish funds to pay the drafts at maturity, with the privilege of a renewal; and it was stipulated that this obligation of the bant should be guaranteed by Cavaroc & Co., and by a deposit witl them, for the use of the Credit Mobilier, of first-class securities of which deposit the latter was to be advised.

This arrangement was immediately telegraphed to New Orleans, and the drafts were drawn on the 12th of July; but the weight of the evidence is, that none of the collateral securities were delivered until the 19th of August, — which might raise a question whether the accommodation acceptances of the Credit Mobilier could be considered as a contemporary, consideration therefor; or, if not, whether the bank was at that time,

Waiving this question,-however, for the present, we will proceed to examine whether, supposing, that no objection arises from the time when this transaction took place, it amounted to such a transfer or pledge of the' securities in question as to entitle the Credit Mobilier to a preference upon them over, the other creditors of the bank at the.time of its failure. Was there such a delivery and- retention of possession of the collateral securities as to constitute a valid pledge by' the la\v of ■ Louisiana ? Clearly they were never ' out of the possession of the officers of the bank, and were never out of the bank for a single moment, but were always subject to its disposal in' any manner whatever, whether by collection, renewal, substitution, or exchange; and collections, when made, were made for the benefit' of the bank, and not that of the Credit Mobilier.

The case has some features in common with, though differing in others fróm, that of Clarke v. Iselin ( 21 Wall. 360 ), in which this court held that collateral securities transferred by the borrower to the lender at the time of the loan were not divested out of the latter by the mere fact of his depositing them with the borrower for collection. The court say: “ Obviously this deposit in no degree affected the title of the defendants to the notes. It merely facilitated collections.''’ The court then cited White v. Platt, a New York case in 5 Denio, 269 , in which it ■ was said: “Where promissory notes are pledged by a debtor to secure a debt, the pledgee acquires a special property in them; That‘property is not lost by their being redelivered to the pledgor to enable him to, collect them, the principal debt being still unpaid. Money which he niay collect upon them' is the specific-property of the creditor. It is deemed collected by the v debtor in a fiduciary, capacity.”

The case of Clarke v. Iselin, being a New York case, and governed by New York law, or the common law as understood in. New York,, the authority cited- was necessarily of great

This advantage exists when notes and bills are transferred to a creditor by way of collateral security. His possession of them gives them the character of a pledge. Their indorsement if payable to order, or their delivery if payable to bearer, gives him the title also, which is something more than a pledge. This double title existed in White v. Platt and in Clarke v. Iselin. lienee the actual possession of the securities by the creditor was a matter of less, importance in those cases.

Whether constructive possession in the creditor can be affirmed, where an article to which his only title is that of pledge is actually, re-delivered to the debtor, with general

In Hays v. Riddle (1 Sandf. (N. Y.) 248), the' plaintiff delivered to the defendant, át his request, a convertible bond of the New York and Erie Railroad Company (which had been pledged by the latter to the former), in order to get it exchanged for stock of the same company, which stock was- to be returned and substituted for the bond in pledge. The defendant never returned either the bond or the stock. The plaintiff brought an action of trover against him for the bond, and recovered its value, being less than the deb for ’which it was pledged. It being objected that by delivering back the bond to the pledgor the plaintiff had lost his special property in it as pledgee, the • court said: “At common law, as a general rule, the positive delivery back of the possession of the thing, with the consent of the pledgee, terminates his title. 2 Pick. 607 ; 15 Mass. 389 . If the thing, however, is delivered back to the owner for a temporary purpose only,, and it is agreed to be redelivered by him, the pledgee may recover it against the owner, if he refuse to restore it to the pledgee, after ',the purpose is fulfilled. 2 Taunt. 266; Story on Bailm., sect. 299. So, if it be deliv- • ered back to the owner in a. new character; as, for example, as

In Macomber v. Parker ( 14 Pick. (Mass.) 497 ), referred to in the last' case, the proprietors of a brickyard contracted it out on shares to a brickmaker, agreeing to advance the money requisite to carry on the manufacture of bricks, and, after being . repaid their advances, to divide the profits with the latter. It was agreed that the bricks, as fast as made, should be pledged to the owners of the yard as security for their advances ;■ but the brickmaker was to keep them in his eharge, and sell them at retail, and as often.as he got the amount of a hundred dollars from the sales he was to deposit it in bank to the credit of the owners. The bricks were afterwards attached as to the share of the maker for'his debts. But the court held that the owners of the yard had not, b.y leaving the bricks in the hands, of the maker, lost their lien as pledgees of the entire property. They remark: “To say that this limited authority to sell the bricks by retail, in small sums, on account of the plaintiffs, was a waiver of their possession of' the residue that remained in the kilns in their yard, would be clearly against the intent and meaning of the .parties, unreasonable, and unwarranted Iby the evidence.” Again: “ The- special authority given by the plaintiffs to Evans [the brickmaker] was to clothe him with the character of agent to a limited extent only, and no remission to him, in his character of pledgor, of the plaintiffs’ right to retain the bricks according to the agreement.” To the objection that retention of possession by the pledgor would have the effect to deceive those dealing with him, the court said: “If the vendor or the pledgor should have the actual possession of the property after it were pledged or sold, it would only be prima facie, but not conclusive, evidence of fraud. The matter might be explained and proved to be for the vendee or pledgee. It is a most familiar principle, that one man may have the actual possession or custody, while another has the legal title and the constructive possession.”

In this case, it will be observed, the pledgees were joint owners of the brick, and were owners of the premises on which the bricks were kept; and the decision was undoubtedly cor

The civil law, which is more particularly our guide in the present case, is to the same general' effect; though it is more careful in denouncing the danger of losing the right of pledge by parting with any thing like permanent or continued possession to the pledgor; and it preserves very clearly the distinction between pledge and hypothecation, or mortgage. The old civil law of the Digest, it is true, was more indulgent, and permitted the pledge to be delivered to the pledgor without prejudice to the security, in a manner that would not be allowed at the present day. Thus, in book xiii. of the Digest, title vii., law 35,' Modestinüs says: “ A.pledge transfers only the possession to the creditor, the property remaining in the debtor; yet the debtor may have the use of it, either as a gratuity, or for hire.” And Paulus, in the same title, law 37, says: “ If I.lend a pledge to the owner thereof, I retain possession by means of the loan; for before the debtor borrowed it, the possession was ■ not in him; and when he borrowed it, it was my intention still to retain the possession, and it was not his to acquire it.” Pothier’s Pandects, vol. vii. p. 360.

As to this law of- the Digest, Mr. Bell, in his Commentaries .on the Scotch Law, remarks as follows: “Voet very justly observes, in criticising this law, that to permit' such practices were to endanger the safety of other creditors, and to sanction a fraud upon the rule which requires possession to complete a real right to movables; and that no true analogy can hold between the law of .'Rome, where hypothecs without possession were admitted, and the laws of modern commercial nations, in which the rule is established that possession preserves property.

The modern French law, governed b.y a similar policy, has been put. into a very explicit form in the Civil Code, which has been followed in the Civil Code of Louisiana. A quotation of some of the principal articles, bearing on this subject, will show the -care taken to require distinct possession in the pledgee.

Art. 3158 (Rev. Civ. Code La.), relating to movables, ■ is as follows: “ This privilege ” [namely, that of pledge] “ shall take place against third persons, only in case the pawn is .proved by an act made either in a public form, or under private signature : Provided, that in this last case it should be duly registered in the office of a notary-public at a time not suspicious: Provided also, that, whatever may be the form of the act, it mentions the amount of the debt as well, as the species and nature of the thing given in pledge, or has a statement annexed thereto of its number, weight, and measure.” This article is copied’from art. 2074 of the Code Napoleon.

As to negotiable securities,, the Louisiana Code, by -art. 3161, provided that a regular transfer by.indorsement should be sufficient. But by a subsequent act, passed in 1852, and re-enacted March 15, 1855, it was provided “ that where' a debtor wishes to pawn promissory notes, bills of exchange, stocks, obligations, or claims upon other persons, he shall deliver to the creditors the notes, bills of exchange, certificates of stock, of other ■ evidences of the claims or rights so pawned; and such pawn so - made, without further formalities, shall be valid as well against third persons as against the pledgors thereof, if made in good

The next article, 3162, which is not affected by the statute, and which is copied from art. 2076 of the Code Napoleon, is important, and is in these words: “ In no case does this privilege subsist in the pledge except when the thing pledged, if it be a corporeal movable, or the evidence of the debt, if it be a note or other obligation under private signature, has been actually put and remained in the possession of the creditor, or of a third person agreed on by the parties.”

As might be supposed, this article has formed the subject of much discussion by the commentators. Troplong says: “The pledgee has this privilege only on the condition of being possessed of the thing. This condition was expressly imposed upon him by art. 181 of the Custom of Paris. This is reproduced by art. 2102, No. 2, of the Code Civil, and we shall' specially discuss it in the commentary on art. 2076. Possession is indispensable to him. It withdraws the thing from the hands of the debtpr and from the actions of creditors, and sets it aside in a privileged situation. ‘•Possidentis melior est conditio.’ Possession is the most sure foundation, and the most striking index of his privilege. Without it, the creditor would have no ground for escaping the law of contribution. Casaregis says, ‘ Preference'is accorded to a pledgee .on the thing pledged, because he has it in his own hands.’

“ This possession ought to be certain and not equivocal. If it is ambiguous, if the things pledged have been so placed as to deceive the other creditors, and to lead them to believe that the debtor always continued the possessor, the pledge would be endangered.”

Troplong shows, however, that this possession may be a. civil possession, as where the ■ delivery is made by the transfer o'f a bill of lading of goods on board a ship, &c. Troplong, Nantissement, arts. 97-99.

The .^ame author, in commenting on art. 2076, after treating of the absolute necessity of possession by the pledgee, in order

In 1839, Morin & Co., of Beaune, pledged to Weiland & Co., of Baden, sixty thousand bottles of sparkling Burgundy, for a debt. The wine was delivered to an agent of Weiland & Co., and deposited in a vault hired by him for the purpose. , It was agreed that Morin & Co. should give the.wine all necessary care, in presence of the agent, who was to keep the keys of the vault. But, to facilitate matters, it sometimes happened that the agent gave the keys to Morin & Co.; and once, in 1840, the latter removed some of the bottles of wine to their own premises. Morin &'Co. having failed, their assignees (syndics) insisted that the pledge was null and void, because the debtors were not dispossessed of the wine. But Weiland & Co. having renounced their privilege on the wines which had been removed, were sustained by the highest court in their claim to the remainder. It was held that the special character of' the wine, and the difficulty of finding persons qualified to take proper care of it, were sufficient reasons for employing Morin & Co. to attend to it; and the agent’s allowing them to . take the keys occasionally for cnis purpose was a mere matter of convenience, to facilitate the operations of the workmen. Troplong, Nant., No. 311; Dalloz, Repertoire, vol. xxxii. p. 455, art. Nantissement. See also Duranton, vol. xviii. Nos. 525, 528, 531.

In another case,-it was decided that the debtor might be permitted to' make sales of the goods pledged, provided that they remained, in the pledgee’s possession, and could not be delivered to the purchaser -without his consent. Dalloz, No. 129.

Troplong. deduces, from these and other cases, the general conclusion that, whenever the assistance of the debtor is’necessary to the better accomplishment of the object of the pledge, it ought to be permitted, provided always that it does not disturb the possession of the creditor in-any respect. Nant., No. 313. Dalloz says: “ It is evident that if the pledge of movables could, without a delivery, have effect in regard to third persons, it would be the source of great frauds and deceptions. When the debtor, is obliged to surrender possession he cannot deceive third parties dealing with him by keeping possession of’ the pledged articles as part of his estate, and getting credit thereby.” He-takes special notice of the decision that a pledge is not valid if the.dispossession of the debtor is not sufficiently com-plete to prevent substitution; or -if there is a mere contract for a pledge, and not an actual pledge. Dalloz, Rep. Nant. 119. And he lays down the principle, that though á contract for a pledge may be enforced against the .pledgor and his heirs (Nant., No. 121), yet that, by the very words of the Code, he cannot set up the privilege .of the pledge, which alone constitutes his right as against third persons, without actual possession, or its equivalent. Nant. 119, 209.

From these authorities it seems to be evident that, in the French law at least, the text of which, in this regard, is the

We think that the decisions in Louisiana lead to the same conclusion. In the case of Geddes v. Bennett ( 6 La. Ann. 516 ), the object of the pledge was certain barrels of whiskey in the warehouse of a third person. The creditor allowed the debtor to remove them to his own premises, upon giving the following receipt: “ Received from J. & R. Geddes four hun- • dred and fifty-six barrels of whiskey, on storage.” Having the goods thus in his own possession, the debtor parted with them- to • a third person. The Supreme Court, in an action brought by the pledgees to recover the whiskey, said: “ The plaintiffs have shown no compliance with the articles of the Code, concerning the form of the contract of pledge, which it would be necessary to observe in order to enable them to recover against the defendants, who- are third persons ; and our impression is, that, under the circumstances of the case, the delivery of the object pledged to Bennett, even under the receipt he gave, would of itself defeat the pledge-; ” referring to article 3162 of the Code, which we have been considering. And in the late case of D’Meza’s Succession (26 id. 35), Myers & Levy had made certain accommodation indorsements for the deceased, upon the faith and promise of receiving from him a policy of insurance upon his life, for which he had made application. Having procured the policy, he told, them to call at his office and get it from his-book-keeper, informing them that he had told the book-keeper

It must not be overlooked that the Credit Mobilier has no other claim to the securities in question but that of pledge. A pledge,-and possession, which is- its essential ingredient, must be made out, or their privilege fails. An agreement for a pledge raises no privilege. There is no mortgage; for the title of the securities was never transferred to them. The evidence of the. cashier is, that they were all stamped payable to the order of the bank, when discounted. They were not indorsed by the cashier until the day they were removed b.y Cavaroc, which was after the bank had failed.

Two cases, decided by the Supreme Court of Louisiana, have been cited and relied on (as well as some- other cases in England and the United States), to show' that an assignee only takes the- property assigned'exactly in the plight in which the debtor held ,it, and subject to all the equities to which it was subject' in his hand's. The first case is that of Campbell v. Slidell ( 5 La. Ann. 274 ), in which a syndic claimed certain real

The second case is that of Partee, Syndic, v. Corning, 9 La. Ann. 539 . In this case, the debtor had actually pledged and delivered bills receivablé to the defendants for • simultaneous advances, but had not indorsed the bills, as required.by art. 3156. The court said: “ It is clear that the pledgors could not have set up this objection; and we are of opinion that the syndic cannot, upon a mere naked informality of .this sort, disturb the pledge. Let it be observed that there is no pretence that the pledges were taken in bad faith, or that an injury was done to creditors in taking them.” Here, the indispensable requisite of possession existed. The other formalities (which were required at tliat time) were enjoined by the article referred to, it is true; but there was no declaration that the pledge should be void, or that the privilege should not exist without them. We. do not think that these cases conflict .with the conclusion which we have reached in this case.

We have examined the other authorities referred to, among which’are Mitford v. Mitford, 9 Ves. Jr. 86; Mitchell v. Winslow, 2 Story, 630 ; and also the cases of Gibson v. Warden, 14 Wall. 244 , and Cook v. Tullis, 18 id. 332 ; but these were all cases in which the creditor claiming adverse to the assignee had a clear legal or equitable title to the property claimed; None of them stood as the present case does, upon the claim of a privilege expressly denied by the law. We do not deem it necessary, therefore, to go into a review of those cases. They cannot affect this.

Whilst it is generally true that an assignee for the benefit of

Indeed, it may -be laid down as a general rule, as well at the common law as the civil law, that a trustee, assignee, or syndic, having the powers and occupying the relations which are sustained by a receiver under the National Banking Act, or an assignee in bankruptcy, may well oppose any privilege or'preference which the'law itself, unaided by a bona fide purchase or judgment, would regard as void against the general creditors in a. direct contest between them and the parties claiming such privilege or preference; even though the debtor himseif, on account of some personal disability arising from his own acts

.Where the legal or equitable property in a security passes, and there is no express law invalidating the transfer, the creditor will be entitled to hold it as well against the assignee or receiver as against the debtor; because the assignee only takes such title as the debtor has at the time of the assignment or insolvency. In that case, however, the question of fraud would be admissible as a question of fact, to invalidate the transaction. But, in the present case, that question does not arise; or, if it might be raised, it is immaterial. The'Credit Mobilier claims a privilege by virtue of a pledge ; and such a privilege, as we have seen, cannot be maintained as to third persons, without possession. Bad faith, it is true, would defeat the pledge though the creditor had possession. But want of possession is equally fatal,- though the parties may have acted in good faith. Both are necessary to constitute a good pledge so as to raise a privilege against third persons. The requirement of possession is an inexorable rule of law, adopted to prevent fraud and deception; for, if the debtor remains in possession, the law presumes that those who deal with him do so on the faith of his being the unqualified owner of the goods.

This consideration meets the objection which is urged against the rule, that it would result in giving to the general creditors the benefit of the advances made to the debtor on the faith of the stipulated pledge, inasmuch as the estate is increased to the extent of these advances. It is true that the estate is so increased; but the debts and liabilities are also increased to the same amount by the demand of the party who makes the advances, — the only effect of the rule being, that the latter comes into concurrence with the other creditors on an equality, and not by way of preference; and if the latter derive any benefit from this result, it must be remembered that, in the view

These considerations also supply an answer to another suggestion, that equity will ’ consider as done what the parties intended should be done, which it is assumed was, in this case, a transfer of the title of the securities. Equity will not exercise this power when it would injure third persons who have incurred detriment, and acquired consequent rights by the acts that are done. Such detriment has, in the view of the law, been incurred in this case, and such rights have, by the express letter of the law, accrued.

This suggestion may also be answered by the fact that it cannot be trul-y said to have been the intent of the parties to transfer the title. The agreement was only that “ securities of the first -class shall be deposited with the firm of Messrs. Cavaroc & Son.” A transfer of the title would have been inconsistent with that unrestricted control over, the securities which the bank desired to, and did, retain, and which must be considered as having-been assented to by the Credit Mobilier, through the common agent, Cavaroc.

On this ground, therefore, of want of possession in the pledgee, or of a third person agreed upon by the parties, and of actual possession and control in the pledgor, we feel compelled -to hold that the Credit Mobilier had no privilege as to third persons, and that the receiver was entitled to the securities in question.

The decree will, accordingly, be reversed,’ and the cause remanded tp the Circuit Court with directions to enter a decree in favor of the complainant below in conformity to this opinion'; and it'is

So ordered.

Mr. Justice S wayne, Mr. Justice Field, and Mr. Justice Hablan dissented.