White v. Phelps

• Citation: 14 Minn. 21
• Parties: J. V. R. WHITE v. A. J. PHELPS.
• Decision Date: 01 January 1869
• Court: Supreme Court of Minnesota (US)

14 Minn. 21

J. V. R. WHITE

v. A. J. PHELPS.

Supreme Court of Minnesota.

Appeal by plaintiff from an order of the court of common pleas, Ramsey county, sustaining a demurrer to the complaint.

The complaint set forth a note made by defendant, payable to the order of one Benjamin Phelps, and alleged that

the payee transferred and delivered it to plaintiff as security for a debt due from him to plaintiff.

P. De Rochebrune, for appellant.

C. K. Davis, for respondent.

McMILLAN, J.

The principal question presented by the demurrer to the complaint in this action is whether the transfer and delivery of a promissory note, after maturity, and without indorsement, as collateral security for the payment of a debt, enables the pledgee, upon default of the pledgor, to maintain an action on the note in his own name against the maker. The transaction is in the nature of a pledge, and the rights and liabilities of the parties must be determined by the law applicable to pledges of personal property of this character. It is a well-settled rule of law relating to this class of bailments that the general property in the pawn remains in the pledgor, and a special property therein passes to the pledgee.

There is no rule of law which limits or defines absolutely the special property of a pledgee, but the rights and liabilities of the latter are to be determined from the terms, express or implied, of the contract between the parties, and we apprehend that whatever special interest or estate in the pawn is necessary to enable the pledgee to exercise the rights guarantied to him, or discharge the obligations imposed on him by the contract, will vest in him.

Let us consider, then, so far as it is necessary, what are the rights and liabilities of the parties in this case.

Where goods are deposited to secure a loan, "it may be inferred," says Gibbs, C. J., "that the contract was this: If I (the borrower) repay the money, you must redeliver the goods; but if I fail to repay it, you may use the security to repay yourself." Pothonier v. Dawson, 1 Holt, Nisi Prius, 383; 3 E. C. L. 154.

The primary and indeed the only purpose of the pledge is to put it into the power of the pledgee to reimburse himself for the money advanced when it becomes due and remains unpaid.

The contract carries with it an implication that the security shall be made effectual to discharge the obligation. Wheeler v. Newbould, 16 N. Y. 396. When the pledge is given as collateral security for the payment of a debt, it can be made effectual to pay the debt only by being converted into money; and in the absence of any special agreement to the contrary, and where there is nothing in the nature of the pawn inconsistent with such intention in the parties, the pawnee may proceed to sell the property without judicial process upon giving reasonable notice to the debtor to redeem.

The means generally resorted to for the accomplishment of the purpose of the pledge is a sale of the property pledged, and writers upon the subject generally state this as the power conferred upon the creditor to satisfy his debt. Story, Eq. Jur. § 1008; 2 Kent, Comm. 582.

But there is nothing in the nature of this bailment which absolutely requires a sale in all cases; and if the subject of the pledge is such that from its nature it is to be inferred with reasonable certainty that the parties intended to restrict the pawnee in the exercise of his powers to a proceeding in chancery, he will not be permitted to sell without a decree. Clark v. Gilbert, 2 Bing. N. C. 356, explained; Smith, Lead. Cas. 298, 299. Or if, from its nature, the pawn cannot be converted into cash without injury to both or one of the parties, and may be converted into money by some other method more beneficial to the parties, we think the pledgee is permitted, and in equity, if not at law, required, to pursue the latter course, for the bailment is for the mutual benefit of both parties, and is in the nature of a trust. "The creditor," says Kent, is required "at his peril to deal fairly and justly with the pledge." "The law, especially in the equity courts, is vigilant and jealous in its circumspection of the conduct of trustees." 2 Kent, Comm. 583.

In the case under consideration there is nothing in the contract expressly restricting the power of the pledgee in the disposition of the pledge. Is there anything in the nature of the pledge from which it is reasonably to be inferred that the parties intend to prohibit a sale of the pledge, either with or without judicial process; or to afford any remedy concurrently with a sale; or to restrict the pledgee in any event in pursuing his remedy to a proceeding in chancery?

The...