In re Pittman

• Citation: 275 F. 681
• Parties: In re PITTMAN.
• Decision Date: 26 September 1921
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

275 F. 681

In re PITTMAN.

United States District Court, E.D. North Carolina.

September 26, 1921

Lyn Bond, of Tarboro, N.C., for trustee.

W. O Howard, of Tarboro, N.C., for bankrupt.

CONNOR District Judge.

Heard upon petition for review and certificate of Marshall C Staton, Esq., referee. The record discloses that D. F Bridgers filed a proof of debt based upon note executed by the bankrupt, January 21, 1921, for $500, due on demand, with interest from date. The consideration upon which the note was executed was the loan of $500 made by Bridgers to Pittman on the date of the note. Bridgers claimed a priority in respect to certain articles of personal property consisting of store fixtures, etc. The trustee filed objection to the priority and, after hearing the evidence, the referee found the following facts:

S. B Pittman was on, and for some time prior to, January 21, 1921, engaged in the mercantile business in Tarboro. D. F. Bridgers loaned him $500, taking note due on demand. When Pittman applied to Bridgers for the loan, he said:

''I would like to borrow $500 from you. I will give you these items here.' Went around and put my hand on them all and said: 'They are in your possession until you have the mortgage drawn up. * * * These things are yours.' Went around and mentioned all the things. Told him he could have the mortgage drawn up at any time he wanted to. I was to pay the money on demand until he had the paper recorded and then on the 1st of November. I wanted the man to have security for his money and I wanted possession of the things at the time I got the money.'

Bridgers testified:

'When I loaned him the money I asked him how long he wanted it. He said, ' december or January,' but he said, 'I will write it on demand.' That's the way he gave it to me. He knew he could keep it as long as he wanted it, but he wrote the duebill on demand. He told me to go and have the mortgage drawn and fixed up, and I carelessly let it go on and on until one day I got to thinking about it and went and had it done.'

To the question, 'What agreement did you and Sol have about it at the time you took the note, January 21st?' he replied:

'He told me he would give me a mortgage on those things, and I said, 'They are all paid for, are they?' And I also said, I wanted something stationary and named these five articles, and I said I could have them until they were paid for. He showed them to me. He told me that it was my stuff and I let him keep it as my property, as my agent.'

On March 16, 1921, the bankrupt executed to Bridgers a chattel mortgage on the same articles referred to in the testimony relating to the transaction of January 21, 1921, executing a new note payable November 1, 1921. The mortgage was recorded on the . . . day of March, 1921. Pittman was adjudged a bankrupt April 12, 1921.

Counsel for Bridgers contend that, at the date of the execution of the note, Pittman pledged the store fixtures to him as security for the loan; that the pledge was for a present consideration; and that Pittman was not, at that time, insolvent and, if found to be so, Bridgers had no knowledge of or reasonable ground to believe him insolvent.

The trustee contends that the transaction did not constitute a pledge, but was an executory promise by Pittman to execute a mortgage when Bridgers should have it prepared.

If what was said and done by Pittman and Bridgers on January 21st constituted a verbal or parol mortgage, as was held by the court in McCoy v. Lassiter, 95 N.C. 88, it was valid as between the parties, but was not so against creditors who secured a lien for want of registration. The trustee is in the position of a lien creditor. Section 47(2). Counsel for Bridgers in his brief contends that 'the original transaction really constituted a pledge.'

There is a well-settled distinction between a pledge and a chattel mortgage. In the first, the title to the property remains in the pledgor, the possession is given to the pledgee. A 'pledge' is defined to be:

'A bailment of goods by his debtor to his creditor to be kept by him until his debt is discharged or a delivery to another of goods or chattels to be security to him for money borrowed of him by the bailor.'

Whereas, in the case of a mortgage the title to the property passes to the mortgagee with the right to redeem upon payment of the debt, the mortgagor remaining in possession. 22 Am. & Eng.Enc. 844.

'Possession is of the essence of a pledge; and, without it, no privilege can exist as against third persons. ' Casey v. Cavaroc, 96 U.S. 467, 24 L.Ed. 779.

A promise to execute a mortgage on personal property to secure a debt, then contracted or in consideration of the present loan of money, or other valuable consideration, may, as between the parties, be enforced, in a court of equity, but does not create a valid lien as against purchasers for value and creditors.

While, to constitute a pledge, it is requisite that the pledgee have possession of the subject-matter of the pledge, 'the possession need not be actual; it may be constructive; as where the key of a warehouse containing the goods pledged is delivered, or a bill of lading is assigned. In such case, the act done will be considered as a token, standing for actual delivery of the goods. It puts the property under the power and control of the creditor. In some cases, such constructive delivery cannot be effected without doing what amounts to a transfer of the property also. The assignment of a bill of lading is of that kind. * * * In such a case, there is a union of two distinct forms of security: That of mortgage and that of pledge; mortgage by virtue of the title, and pledge by virtue of the possession. ' Casey v. Cavaroc, supra. The line of distinction between acts which will constitute a delivery of possession of goods, essential to constitute a valid pledge, is not always clear as is illustrated in the review of the decided cases and authoritative text-books made by Judge Bradley in the case cited.

It is said:

''Preference is accorded to a pledgee on the thing pledged, because he has it in his own hands. This possession...