First National Bank v. Caperton

Whitfield, J., delivered the opinion of the court. The mortgage of October 25, 1891, to the First National Bank, on its face reserves the right to the mortgagor to £ £ keep and use” the property. This avoided the instruments, both constituting one transaction. Acme Lumber Co. v. Hoyt, 71 Miss., 106. The property was largely consumable in its use. It is said that the subsequent provision that in case the mortgagor should sell or assign said property, or any interest therein, that the mortgagee should take immediate possession, etc., saves the instrument. But the £ £ use ’ ’ first referred to clearly is the usual use in the ordinary course of business, and the latter provision relates to a selling out of the business, otherwise than at retail, in such ordinary course of business; and a clause providing for such selling out at retail, as usual (Jones on Chat. Mort., sec. 158, note 1), cannot be permitted. It would operate a fraud on those who gave credit to the mortgagor on the faith of apparent ownership, serving the purpose of continuous cover. The provisions invoked in Hitchler v. Bank, 63 Miss., 103; in Britton v. Criswell, Id., 391; and in Baldwin v. Little, 61 Miss., 126, were all in the granting clause of the instruments in those cases, and not, as here and in Hoyt’s case, supra, in the clause reserving control to the grantor. The decree on the appeal of National Bank of Chicago against Caperton et al. is therefore affirmed, as the right result was reached. As to the evidence, it is only necessary to say Charnley, the president of the American Cooperage Company, [869] said he expected to continue the business as usual, and that it very clearly shows that the grantor was selling out in the usual course of business, certainly up to October 30, though Gage says he did not know anything as to this, admitting, however, that the forbearance of the mortgagee doubtless permitted this to be done. On the appeal of E. M. Caperton et al. against Cyrus H. McCormick we find ourselves, after repeated examinations of the record and of the many authorities cited, unable to concur with the learned chancellor. The possession was too equivocal, looking to the constant substitutions and the whole evidence touching the character of the possession. Jones on Pledges, sec. 40, et seq.; 18 Am. & Eng. Enc. L., 597, and note 4; Nisbit v. Trust Co., 4 Woods, 470 (12 Fed. Rep., 686); Trust Co. v. Trumbull, 137 Ill., 146 (27 N. E., 24); Casey v. Cavaroc, 96 U. S., 467. In this last case, as here, all the money arising from the sale of the originally deposited securities went to the bank, and not to the pledgee. It may be conceded that McCormick acted in perfect good faith. But the presence-of good faith cannot supply the lack of the character of possession essential to the existence of a pledge. As well said by Mr. Justice Bradley in the case last cited: “Bad faith 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.” The case of the Champagne Wines, cited by Justice Bradley (p. 484), is squarely in point here. There was no substitution in the case of Bank v. Harkness (W. Va.), 24 S. E., 548. The case of Abbott v. Goodwin, 20 Me., 411, is in conflict with our decisions, unless the distinction that the proceeds of the [870] goods sold were to be paid to the mortgagee, and were so paid, distinguishes it; and that distinction cannot aid appellees, because here the proceeds went to the pledgor. In Sumner v. Hamlet, 12 Pick., 76, the strongest case learned counsel for the appellees has cited, it seems there was a new and independent arrangement and contract, both as to the debt and the pledge, made in October, 1829, and the forty-five pieces of flannel selected under the new contract were never substituted. In Combs v. Tuchelt, 24 Minn., 423, all the unstamped cigars which the pledgor got from Mann, the agent of the pledgee, were paid for, and the money paid to the pledgee, so that the lien of the pledge attached only to the unsold part, which was never substituted. In Allen v. Smith, 10 Mass., 308, the possession, designated by stakes and marks, was visible and notorious, and there was no substitution; and Hilliker v. Kuhn, 71 Cal., 214 (16 Pac., 707), merely holds that a mere temporary charge of the pledge by the pledgor, after delivery to the pledgee, to assist the pledge holder, does not invalidate the pledge. Of course, delivery may be according to the nature of the thing delivered — as, of the contents of a warehouse by delivery of the key or of a warehouse receipt, or as by delivery of bill of lading, or as by pointing out logs in a boom, etc. We are not speaking specially here of the mere delivery of the original material; but, on the whole evidence, it seems to us clear that the claim of Mr. McCormick cannot, under ‘ ‘ the inexorable rule of law ” as to the character of the possession, be upheld. The decree on the appeal of Gaperton et al. against Me Gormick is therefore reversed, and the cause remanded for a decree below in accordance with this opinion.