strument which would be construed as part of the conveyance. Thus, if a policy of insurance be assigned, and the instrument of assignment or a separate defeasance provides that the assignment shall be null and void upon the payment of the debt secured, but otherwise shall continue in full force, the transfer constitutes a mortgage and not a pledge. "The purport and substance of the contract, and the intention of the parties as disclosed by the language they have made use of to express it, clearly indicate a sale or mortgage rather than a pledge.'

991

An assignment by one of the beneficiaries of a trust fund held by trustees of his interest under the trust as security for a debt is a pledge rather than a mortgage, although the property held in trust is land which the trustees are to sell and divide the proceeds among the beneficiaries; as the assignment affects only the distributive share of the beneficiary after the execution of the trust."

An assignment of a contract absolute in form, as collateral security, is a pledge rather than a mortgage of it. The fact that the title passes in form Joes not make the transaction a mortgage. A transfer of title is necessary in order that the creditor may have full control of the contract, and the means of promptly enforcing it."

§ 10. If property be deposited in the hands of a third person to secure a creditor, without transferring the title to either the one or the other, the transaction will be a pledge and not a mortgage.

A written contract to secure advances upon wheat by the delivery of warehouse receipts, and to give a lien not only upon the securities then in the creditor's hands, but also upon all such as might be thereafter delivered to him, with a power of sale in case of default, followed by a delivery of such receipts, constitutes a pledge and not a mortgage of the wheat. It is also immaterial in this respect that the receipts contain 1-Dungan v. Mut. Benefit Life Ins. Gay v. Moss, 34 Cal. 125. Co., 38 Md. 242, 253.

2 Hyman v. Bogue, 135 Ill. 9, 26 N. 13. E. Rep. 40.

8

* McCready v. Haslock, 3 Tenn. Ch.

a clause, that in case of a flood-the warehouse being situated on the bank of a river-the property should be at the risk of the owner. "There was no sale of the property or transfer of the title to the plaintiff, but a deposit thereof with a warehouseman as a security for money loaned. The term 'mortgage' is not used in the contract, neither does it contain any language which indicates in the least a sale or transfer of title. The stipulation for a lien, though unnecessary in case of a pledge, is in harmony with the idea of one, of which it is an essential feature; but inconsistent with the idea of a mortgage, which goes further and passes the legal title. The power of sale is also consistent with the purpose to constitute a pledge, of which it is a legal incident, although not an unusual provision in a mortgage. The issue and delivery of the receipt was only a mode of furnishing the plaintiff with the evidence of the deposit of the pledge at the place agreed upon, and the right to the possession of the same, and to dispose of it according to the terms of the bailment. But from the nature of things it was a pledge, qualified by the situation and subject of the contract, and the conduct of the parties under it; so that the custody of the property, instead of being actually or absolutely in the creditor, remained in the warehouseman, subject to his control for the purposes of the contract, and while there at the risk of the 'owners' in case of flood."

§ 10a. An assignment of securities to a trustee with power to sell at his discretion and to discharge an obligation due from the assignor to a third person creates a trust and not a pledge. The assignor is not in such case entitled to notice of a sale of the securities by the trustee. "In a case of strict and simple pledge the law applicable to pledges must govern the rights of the parties to it, but to apply these rules to the transfer made by the assignor to the trustee would be to disregard the plain terms of the written contract, and fritter away the rights of the parties in a too close adhesion to rules established by the

1 Bank of British Columbia v. Marshall, 11 Fed. Rep. 19, 27, per Deady, J.

courts to govern the transaction known as a mere pledge or pawn, in which the subject of the pledge is delivered to the pledgee as a security, and to be redelivered when it has served its purpose.

2

§ 11. An instrument which in terms pledges property creates only a lien upon it, and is a pledge, whereas one which in terms conveys it absolutely as a security is in legal effect a mortgage. Yet the use of the word "pledge" does not of itself conclusively determine the character of the transaction; for even when the word "pledge" is used, if it is clear that the intent of the parties was that the possession of the goods should remain in the debtor, and the possession does so remain, the transaction will be regarded as a mortgage, and not a pledge.3 "But where the word 'pledge' is used, and the nature of the transaction is in conformity with the character of a pledge, in this material respect, that the possession is to be in the creditor, the word is accurately used, and must control, both as expressive of the intent of the parties, and of the legal effect of their agreement.

§ 12. The use of the term mortgage in an instrument whereby security is given does not necessarily make the transaction a mortgage.

An instrument whereby a debtor acknowledges his indebtedness in a certain sum, "and in guaranty of said sum, and all interest that may accrue thereon, I hereby give this guaranty mortgage on the British barque Trait d'Union, her apparel, ballast, chains, and all goods, furniture, and appurtenances appertaining to said vessel, all being my property as per register, possession being delivered to the creditor, is not a mortgage

8

• Haskins v. Patterson, Edm. Sel.

1 Murdock v. Columbus Ins. Co., 59 Cas. 120; and see Bonsey v. Amee, Miss. 152, 160, per Campbell, J. Pick. (Mass.) 236. 'Jones on Chattel Mortgages, § 11; Prescott v. Prescott, 41 Vt. 131. *Langdon v. Buel, 9 Wend. (N. Y.) 80; Haskins v. Patterson, Edm. Sel.

Cas. 120.

5 Jones on Chattel Mortgages, § 12; Thoms v. Southard, 2 Dana (Ky.), 475, 26 Am. Dec. 467.

1

but a pledge. In such case the vessel goes towards the discharge of the debt, and the pledgee's possession is consistent with the legal title of the owner, and his right to regain possession upon satisfying the debt. Expenses incurred by the pledgee, for repairs upon the vessel while in his charge, are to be deducted from the receipts for her earnings.

If a mortgagee under a mortgage void as against creditors takes possession of the mortgaged property, under an agreement with the debtor that he shall hold possession until the debt is paid, his title will be good as against subsequent attachments and executions by other creditors, by virtue of the contract of pledge, and of the possession under it, though his mortgage be defective because it is not recorded.'

If property not in existence or not owned by the mortgagor be mortgaged, the mortgage is invalid at law as against third persons, who may acquire an interest in it, or a lien upon it, before possession be delivered by the mortgagor to the mortgagee. The mortgage is simply an executory contract binding upon the parties, but void as to third persons who have no notice of it. But if the mortgagee, before a third person has obtained any specific interest in it, takes possession of the afteracquired property, he holds the property by way of pledge, but in the same manner as though the mortgage had been executed at the time he takes possession, and in the same manner as though he had taken the property under and by virtue of a chattel mortgage covering the property."

A pledge of goods by a mortgagor to the mortgagee, when the mortgage is fraudulent against the creditors of the former, because the mortgage was of a stock of goods which the mortgagor was allowed to sell in the usual course of business, is effectual, and protects the pledgee against a subsequent attachment by a creditor of the pledgor, although the pledgee leaves

1 Wilson v. Knapp, 70 N. Y. 596.

2 Scarry v. Bennett, 2 Ind. App. 167, 28 N. E. Rep. 231; Falk v. Decou, 8 Kan. App. 765; Finn v. Donahoe, 83 Mich. 165, 47 N. W. Rep. 125; Commercial Bank v. Davy, 81 Hun 200, 62

N. Y. St. Rep. 681; Greeley v. Reading, 74 Mo. 309; Nash v. Norment, 5 Mo. App. 545; Jones on Chattel Mortgages, §§ 167, 178..

629.

Cameron v. Marvin, 26 Kan. 612,

the pledgor in possession under an agreement that the latter shall sell the goods and pay the proceeds to the former.1

§ 13. Contracts substantially the same in terms may be construed either as mortgages or pledges under different circumstances, according as the one security or the other will best effectuate the intentions of the parties, and subserve the purposes of justice. If it appear that the parties intended that their contract should have the legal effect of a mortgage, the fact that they used words denoting a pledge will not necessarily make it a pledge. Thus, an instrument using the words, "I pledge and give a lien," may be construed to be a mortgage;* and a writing in the following words, "Turned out and delivered to A. one white-and-red cow, which he may dispose of in fourteen days to satisfy an execution," was held to be a mortgage with a power of sale; chiefly for the reason that the cow was left in the possession of the debtor, and effect could be given to the instrument only by regarding it a mortgage. An instrument which would be a pledge if possession of the property be given to the creditor may be a mortgage if possession be retained by the debtor. Thus, where a conveyance of chattels was made upon condition that it should be void if the grantor should hold the grantee harmless from certain indorsements made by him, the fact that there was no delivery of the property was held to be decisive that the transaction was a mortgage and not a pledge."

1 Pettee v. Dustin, 58 N. H. 309; Janvrin v. Fogg, 49 N. H. 340, 351. In New Hampshire a mortgage of a stock of goods which the mortgagor may sell in the usual course of trade is invalid, unless it provides that the proceeds of all sales shall be paid to the mortgagee, and they are actually so paid. But this rule does not apply to pledges.

2 Ward v. Sumner, 5 Pick. (Mass.) 59; Wright v. Bircher, 5 Mo. App. 322, per Bakewell, J. See Jones on Chattel Mortgages, § 14.

JONES PLEDGES-2