Works v. Merritt

Harrison, J. On the 5th of February, 1891, the defendant was indebted to the Story and Isham Commercial Company, a corporation, in the sum of five hundred and twenty-five dollars for merchandise sold and delivered to him by it, and on that day the corporation, by an instrument of writing, assigned the indebtedness to Mrs. Adella B. Story as security for money paid, and by said instrument agreed to be paid, by her for the benefit and account of the corporation. This instrument is set out at length in the case of Story & Isham Commercial Co. v. Story, 100 Cal. 30. After this assignment the defendant gave to Mrs. Story his promissory note for the amount, which she accepted in full payment for the account, and gave to the defendant a receipt acknowledging its payjnent. Prior to giving this note the corporation executed an assignment of the claim to one Miller, who afterwards assigned it to the plaintiffs, which assignment was for a valuable consideration, and the defendant had notice thereof at the time that he executed the note to Mrs. Story. The plaintiffs and their assignor had notice also of the assignment in February to Mrs. Story. This action was brought to recover from the defendant the amount of said indebtedness. The court below held that there had been no assignment to Mrs. Story, and gave judgment in favor of the plaintiffs, and the defendant has appealed from an order denying his motion for a new trial. The respondents seek to sustain the decision upon the ground that, as the account was assigned to Mrs. Story only as a security, the title still remained in the corporation (Civ. Code, sec. 2888), and that the corporation still had the power of [469] disposing of the account. It is also claimed by the respondents that the account was not “ pledged ” to Mrs. Story, for the reason that she did not take possession of it, and that, as the assignment was not executed with the formalities required for a chattel mortgage, no lien was created in her favor. There can be no physical possession of an open account, but its assignment by an instrument of writing will vest the assignee with the legal right to collect the same, whether such assignment be an absolute ownership, or for the mere purpose of collection, either as agent of the assignor, or as security for the performance of an obligation from the assignor to the assignee, and in the latter case the power of collection will be so coupled with an interest in the account as to prevent the assignor from doing any act to impair the rights of the assignee to collect the account. At the time that the account of the defendant was assigned to Mrs. Story the corporation was indebted to her, and, as a further consideration for the assignment, she obligated herself to pay the indebtedness of the corporation, and thereby acquired the right to collect the accounts assigned to her as security therefor. After thus conferring upon her an interest in these accounts, and the right to collect them for her own reimbursement, it was not competent for the corporation to deprive her of this right, either by collecting the account itself, or by an assignment to another who had knowledge of the previous assignment to her. The provision in section 2924 of the Civil Code that “ Every transfer of an interest in property other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage,” does not limit the right of the owner of personal property to transfer the same by way of mortgage to the articles enumerated in section 2955 of the Civil Code. The right to deal with property and to make a qualified or absolute transfer of it is an essential element of ownership, and may be exercised to the fullest extent, unless there is some [470] statutory restriction of such right. (Civ. Code, sec. 679.) There is no express restriction in the statutes of this state against making a mortgage upon any kind of personal property, and the comprehensive provision in section 2924 indicates that the term “ mortgage” embraces “ every transfer made only as a security for the performance of another act,” whether the transfers are those for which specific, provision is made in other, parts of the code, or such as rest upon the natural right of individuals to deal with their property as they choose. Section 2955, in which provision is made for mortgages upon personal property, does not in terms restrict the right to make such mortgage upon the property therein enumerated, and the general provision in section 2957 that “ a mortgage of personal property” (that is, any mortgage of personal property) “is void as against creditors of the mortgagor and subsequent purchasers and encumbrancers in good faith,” unless certain formalities are complied with, is of universal application, and is not limited to mortgages upon property enumerated in section 2955. (See, also, Gilman v. Curtis, 66 Cal. 116; Tregear v. Etiwanda Water Co., 76 Cal. 537; 9 Am. St. Rep. 245; Chittenden v. Pratt, 89 Cal. 178.) It was incumbent upon the plaintiffs, and not the defendant, to show that the corporation had not collected the two thousand dollars which it had reserved the right to use in its business. The assignment to Mrs. Story included all the accounts, and it was for the plaintiffs to show that this was within the exception. The reservation of two thousand dollars was, moreover, limited to moneys that might be collected by it, and did not confer the right to make an assignment of the accounts. The order is reversed. Garoutte, J., De Haven, J., Fitzgerald, J., and McFarland, J., concurred.