Fraker v. Reeve

Cole J. By the terms of the instrument set out in the answer, the legal title of the two Vandercook & Ferguson notes was conditionally transferred to the defendants. The instrument is in the nature of a chattel mortgage, and the principles of law applicable to such contracts must determine the rights of the parties under it. We shall not attempt to determine and settle all those rights in this action. We will merely say -that we are quite clear that trover for the conversion of the notes cannot be maintained upon the facts alleged in the pleadings and proven on the trial. An examination of the instrument will show that it was rather in the nature of a mortgage than a pledge of the notes. The distinction between a pawn and mortgage of chattels is well settled. “ By a grant or conveyance of goods in gage or mortgage, the whole legal title passes conditionally to the mortgagee; and if the goods are not redeemed at the time stipulated, the title becomes absolute at law, although equity will interfere to compel a redemption. But in a pledge, a special property only passes to the pledgee, the general property remaining in the pledgor.” Story on Bailments, § 287 ; 4 Kent, 149 (11th ed.); Flanders v. Thomas, 12 Wis., 410, and cases there cited. Now, upon referring to the written contract, it will be seen the plaintiff thereby expressly transfers and sets over to the defendants the two Vandercook and Eerguson notes, together with the chattel mortgage securing the same, as collateral security for the payment of his note executed to them of even date with the instrument, upon condition that if default was made in the payment of the last named note, then the defendants were authorized to collect the former notes, or to negotiate them for the purpose of liquidating the last described note. Thus it indubitably appears that the legal title of the notes in controversy was transferred to the defendants, with the authority either to collect or negotiate them in case the plaintiff’s note was not paid at maturity. And we fail to discover anything in the receipt set out in the complaint which [90] varies these terms of the contract, or which shows that the property in the notes did not, on default, pass to the defendants. It is an admitted fact in the complaint, that the plaintiff’s note was not paid. It is also stated in the complaint, that due notice was given the plaintiff to redeem these notes, and that unless he did redeem them the defendants, by virtue of the power given them, would proceed to negotiate and sell them at public auction for the purpose of raising money to pay his note ; and that he was fully advised of the time and place of the sale. The complaint further shows that the plaintiff, by his attorneys, attended at the time and place mentioned, and forbade the sale, but that, notwithstanding this protest, the defendants sold the notes to Moses Hooper for the sum therein named. In view of these matters we do not perceive upon what ground an action for the conversion of the notes can be sustained. For, as above remarked, the transaction was in the nature of a mortgage, and the title in the notes was vested conditionally in the defendants. The plaintiff made default in the payment of his debt, and had not paid it at the commencement of this action. The counsel for the plaintiff insists that, as the notes were only transferred as collateral security, the defendants had no right to sell them in the manner they did and give an absolute title. But under the authority expressed in the instrument, they could collect the notes when they became due, or might “ negotiate ” them for the purpose of satisfying their debt. To that extent and for that purpose the legal title and general property in the notes had been doubtless vested in them. The plaintiff gave them clear and ample right and authority thus to deal with these securities. It appears to us the case is clearly distinguishable from that of Wheeler v. Newbould, 16 N. Y., 392. The court there held that the contract was a pledge of the notes, and not a mortgage, and that it was entirely silent as to the power of the pledgee over the subject of the pledge. And as the contract imposed no condition and pre [91] scribed no terms in regard to the disposition o£ the notes in the event the loan was not paid at maturity, the power and authority of the-creditor to deal with them was to be determined by the general principles and analogies of the law. The case furnishes no ground to sustain this action for a wrongful conversion of these notes upon the facts established by the evidence and the admissions in the pleadings. Whatever may be the rights of the plaintiff under the contract, it seems to us clear he has mistaken his remedy. What that remedy is, if in fact any exists, or how it is to be enforced, we shall not attempt to point out, but content ourselves with deciding the case before us. In Wheeler v. Newbould, the court very strongly intimates — if the point is not expressly decided — that a pledge of commercial paper as security for a loan does not, in the absence of a special power for that purpose, authorize the pledgee, upon the nonpayment of the debt, and upon notice to. the pledgor, to sell the securities pledged, either at public or private sale; but that he is bound to hold the same, collecting them as they become due, and applying the proceeds to the payment of the loan. Without dwelling on that case, we think' the rule there laid down does not apply to a transaction like the one before us, where the intention was that the property in the notes should become absolute at law in the creditor on default of the debtor to pay his debt. This view is decisive of the case, and renders it unnecessary to notice the questions of practice brought to our attention by the brief of the counsel for the plaintiff. By the Court. — The judgment of the circuit court is affirmed.