Summary
In Wood Preserving Co. v. Coney Grocery Co. et al., 176 Miss. 406, 168 So. 864, it is declared that Section 3352, the invoked statute, has no application to an assignment or pledge which has become complete by delivery, actual or symbolical of the property, if a chattel, or by assignment of it, when, as here, it is a chose in action.
Summary of this case from Crump v. HillOpinion
No. 32179.
June 15, 1936. Suggestion of Error Overruled September 21, 1936.
1. PLEDGES.
Corporation, to which lumber had been delivered subsequent and pursuant to agreement whereunder corporation was to advance money for processing lumber and receive payment for advances and pre-existing debt from proceeds thereof, held to have prior lien against lumber, as against attaching creditor whose attachment was levied while lumber was in possession of such corporation, notwithstanding that lumber was subsequently to have been returned to owner.
2. PLEDGES.
Evidence held insufficient to support decree awarding priority to attachment against lien of pledge under which lumber was held at time of attachment, on ground that pledge agreement was collusive for purpose of enabling owner of lumber to place property beyond reach of general creditors.
3. PRINCIPAL AND AGENT.
Statute providing that all property used or acquired in business transacted by person without disclosure of principal shall be liable for debts of such person held not to prevent such person from selling or pledging property used and acquired by him in his business; hence only right pledgor's general creditors have in pledge is to subject interest of pledgor to payment of debts (Code 1930, sec. 3352).
APPEAL from chancery court of Pike county. HON. R.W. CUTRER, Chancellor.
Flowers, Brown Hester, of Jackson, Hugh V. Wall, of Brookhaven, and J.N. Ogden, of Magnolia, for appellant.
We call attention to the Chancellor's failure to file a written statement of his findings of fact and conclusions of law thereon as required by chapter 252, Laws of 1934. He was urged by counsel to do this. This alone, we understand, is fatal error.
Bullard v. Citizens' Nat. Bank, 160 So. 280; Alexander v. Hancock, 164 So. 772.
The transactions between the Mitchell Company and Ayer Lord Tie Company created a pledge of the lumber to Ayer Lord Tie Company and gave them a prior lien that was not affected by the attachments.
One fact in this case is outstanding and that is that the transactions between the Ayer Lord Tie Company and Mitchell were had in entire good faith. This is not denied. There is not in the record any evidence whatsoever from which any other inference could be drawn.
All the lumber on Mitchell's yard and all the lumber that had been manufactured by him was covered by these contracts of pledge. There was no other lumber. There is involved no question of identifying or separating the lumber covered by these contracts from other lumber, — there was no other lumber.
We recognize that delivery and retention of possession of the property is necessary to constitute a valid pledge. The property was identified, measured and marked in the presence of both parties and then and there the writing was drawn up and the cash consideration paid. And generally speaking there are two or more classes or kinds of delivery, any one of which is sufficient to meet the requirements of a pledge contract.
In the first place when the property pledged is small and can be picked up and carried away that course is followed. If the property is too big to carry away they examine it, identify it for their purposes, make their contract about it and further deal with it as the nature of the property may suggest. There is no particular way to do it provided for in the law. The material elements in such an arrangement are that the parties agree upon the property, locate it, or otherwise identify it, make the contract about it and pass the consideration and act in good faith. If the pledgor and the pledgee agree upon the property and identify it and the pledgor agrees that it is delivered to the pledgee and the pledgee binds himself that he has accepted it and pays the consideration and the pledgee has possession and retains it then there is a good contract of pledge. And it is a good contract whether anybody else in the world knows about it or not. And there is no requirement that anybody be given notice that the pledge has been made. It is a matter between the parties to the contract.
Jones on Pledges (3 Ed.), page 48, sec. 34; First National Bank of Hartness case, 33 L.R.A. 408; Cartwright v. Phoenix, 7 Cal. 281; Chaffin v. Doub, 14 Cal. 384; Allen v. Smith, 10 Mass. 308.
The lien that the seller of personal property has does not need to be recorded. No notice to creditors has to be given. The debtor may have the property in his possession and ostensibly be the outright owner of it. There are numerous instances where the public has no information as to the location of the title or the existence of a lien.
Yale v. Taylor, 63 Miss. 598; Willis v. Memphis Co., 19 So. 101.
No case has been found in the books where a pledge contract, treated as valid and binding as between the parties, has been set aside at the instance of third parties. The question is whether there was a valid contract entered into by the parties. If it was binding upon them it must be recognized by everybody else. And here, as we have seen, the one party swears he made delivery and the other party swears he accepted delivery; and both swear that the pledgee retained control; and that they made hundreds of these contracts and performed them, carrying out the contract of pledge according to its terms.
Courts of equity do not condemn or even look with disfavor upon the man who undertakes to protect himself. The amount of money advanced by Ayer Lord Tie Company was large. They undertook to protect themselves as they went along by taking over the lumber as they made advances on it. And under no circumstances can they come out of it without a loss larger than the claims of all other creditors combined.
Conrad v. Fisher, 37 Mo. A. 352, 8 L.R.A. 147; 49 C.J. 895, sec. 1; Douglas v. Peoples Bank of Kentucky, 86 Ky. 176, 9 A.S.R. 276; Casey v. Cavaroc, 96 U.S. 467, 24 L.Ed. 779; Casey v. National Park Bank, 96 U.S. 492, 24 L.Ed. 789; Norton v. Baxter, 4 L.R.A. (N.S.) 305; Bank v. Caperton, 74 Miss. 857, 22 So. 60, 60 A.S.R. 540; Mattison v. Judd, 59 Miss. 99; Jones on Pledges (3rd), sec. 5; Hilliker v. Kuhn, 71 Cal. 214; Wilkinson v. Misner, 138 S.W. 931, 158 Mo. App. 551.
The sign statute does not have the effect to derange the priority of liens between creditors of a common debtor.
Campbell Paint Varnish Co. v. Hall, 131 Miss. 671, 95 So. 641; Kinney v. Paine, 68 Miss. 258, 8 So. 747; Dodds v. Pratt, 64 Miss. 123, 8 So. 167; Frank v. Robinson, 65 Miss. 162, 3 So. 253; Payne Hardware Co. v. Harvester Co., 110 Miss. 671, 95 So. 641; Yale v. Manufacturing Co., 63 Miss. 598; Lyons Co. case, 38 So. 371; 299 F. 789; 293 F. 105 (1); 30 F.2d 979 (4); 2 F.2d 29 (4).
The fact that the pledged property was sold in the name of the Mitchell Company but under our supervision and control and only with our consent and approval, does not detract from the pledge. Such an arrangement is not uncommon when dealing with pledged property.
49 C.J., Pledges, sec. 75; Casey v. Cararac, 24 L.Ed. 779; Macomber v. Parker, 14 Pick. (Mass.), 497; Jones on Pledges (3 Ed.), sec. 33, page 41.
Strictly speaking, there is no such thing as an attachment lien. Liens are not created by attachment.
2 R.C.L. 856, sec. 67.
In a proper sense of the word an attachment does not create a lien, but merely places in the custody of the law property which has been seized under it.
All that could be and that has been done under these attachments was to seize the property and have the lower court declare that the amount sued for was just, correct, due and owing. No special lien of any sort has been or could be created. Appellees have only gained the right (by attachment) to share first in the proceeds of the attached property as against creditors occupying a similar class, to-wit: common creditors.
We are not required to do any more in order to entitle ourselves to a priority over appellees to the pledged property than if they had never attached. In so far as this issue is concerned, the fact that they attached or did not attach makes not one particle of a difference.
2 R.C.L. 862, sec. 73.
In fact the attaching creditor gets his prior right against only such interest in the property attached as the defendant debtor had.
Harkness case, 33 L.R.A. 412.
A pledge or contract for a pledge, ineffectual for want of delivery, may be rendered valid by a subsequent delivery, even as against an intermediate creditor at large of the pledgor.
Jones on Pledges (3 Ed.), pages 50 and 51.
A pledgee does not lose his lien by permitting the pledgor to have possession of the property for a special and limited purpose, and not merely for his own use and benefit.
Jewett v. Warren, 12 Mass. 300, 7 Am. Dec. 74; Smith Lbr. Co. v. Adams, 100 Miss. 30, 56 So. 265; Haskins v. Fidelity Bank, 159 P. 1198; Jones on Collateral Securities and Pledges (3 Ed.), sec. 44.
A party might be fooled and misled to his hurt who purchased a stack of lumber from the man who appeared to him to be in possession of it and to be the owner of it and who claimed to be the owner of it. But even in that case the purchaser could not hold the property as against the real owner or the pledgee, if there had been a valid pledge. But the instant case has in it no peculiar facts or circumstances that would render inequitable the application of the rules as to pledges. No one of the attaching creditors purchased any of the lumber; none of them knew there was any lumber; none of them had seen it. They are simple contract general creditors. And the Ayer Lord Tie Company was a creditor. It had a lien on the lumber and the other creditors did not have a lien.
The court asks this question, "First, does the evidence disclose that for the two weeks hereinbefore mentioned the planing mill and the lumber here in question were in the possession and control of the appellants?"
We submit to the court that this question must necessarily be answered in the affirmative, that is, that from August 27th to the time the attachments were filed, this appellant was in the open, public possession and control of the plant and yard at Fernwood and was actively dealing with the property that was attached, having it planed, loaded on cars and shipped to purchasers, and that its acts in this regard were done by it as pledgee. It asserted no other rights in the property. Of course it could not have used Mitchell's trucks and planing mill without the latter's consent. The latter naturally consented because he had an equity in the lumber and it was to his interest that the marketing continue and that the orders on hand be filled.
The court has asked this question, "Second, assuming, but solely for the purpose of argument, that prior to the beginning of the two weeks hereinbefore referred to the appellant's possession of the lumber was not such as to perfect a pledge thereof to it by Mitchell, was the pledge perfected in the appellant by the possession it had of the lumber during the two weeks prior to the levy of the first attachment herein?"
The question must be answered in the affirmative.
Parshall v. Eggert, 54 N.Y. 18.
We concede that fraud vitiates every transaction in which it is present. If Ayer Lord Tie Company and Mitchell carried on these transactions with a view to defrauding these appellees, or if these transactions were not had in good faith, insofar as the rights of these appellees are concerned, we concede that this court should affirm the decree of the chancellor. This is necessarily true. Courts do not enforce fraudulent transfers or manipulations of property for the benefit of either party to such transactions. But we here state to the court that there is in this record not a vestige of evidence to support the charge of fraud.
The date of the attachment was September 13, 1934, and the record shows and we repeat there can be no dispute that R.S. Allen, representing the appellant on August 27, 1934, took the actual, notorious and exclusive possession and control of all of the property which was attached and had continuous and exclusive possession and control of it for about seventeen (17) days prior to the attachment.
We submit that the evidence is conclusive that Mr. Allen took possession of the lumber and mill which were attached and was actually operating them at the time the attachment was served.
As to Question No. 2 see Parshall v. Eggert, 54 N.Y. 18. Also see Sexton v. Kessler, 97 CCA 161, 172 Fed. 535, 40 L.R.A. (N.S.) 639; Jones on Pledges, 2d, section 38; 225 U.S. 90, 32 S.Ct. Rep. 657-658, 56 L.Ed. 995; Gamson v. Pritchard, 210 Mass. 296, 96 N.E. 715; MacDonald v. Aetna Indemnity Co., 90 Conn. 415, 97 A. 332; Burrowes v. Nimocks, 35 Fed. (N.S.), 152; Johnson v. Burke Manor Building Corporation, 48 F.2d 1031, 83 A.L.R. 1273; Goldstein v. Rusch, 56 F.2d 10.
In order to constitute a valid pledge, as against creditors or subsequent purchasers or encumbrances in good faith, ordinarily there should be an immediate change of possession of the property to the pledgee. But a contract of pledge unaccompanied by delivery of the property, and ineffectual for that reason, is not per se fraudulent, and possession delivered to the pledgee at a subsequent time will validate the pledge and render it effectual, except where there has been fraud, and except as against creditors who have in the meantime acquired specific rights or liens on the property pledged.
49 C.J. 9112, sec. 36; Jones on Pledges (3 Ed.), sections 38 and 39.
Price McLain, of McComb, for appellees, Gulf Refining Company and 555 Service Station.
The record affirmatively discloses that counsel for appellant did not request the chancellor to find the facts specially, and state separately his conclusions of law thereon, and enter same of record, until after the chancellor had rendered his decision. The record also affirmatively discloses that counsel for appellant did not request the chancellor to make a separate finding of fact and his conclusions of law at the close of the argument, or before the chancellor had entered upon the delivery of his opinion or announcement of his conclusions.
General Tire Rubber Company v. Cooper, 165 So. 420.
The chancellor held, and the decrees recite, that there was collusion between the Ayer Lord Tie Company and the Mitchell Lumber Tie Company, Incorporated. The decrees of the Chancellor are also conclusive as to the issues of fact, to-wit: that the alleged pledge was void as against creditors, third parties and attachments, and that the possession of the alleged pledged property by the pledgee was so equivocal as to void same insofar as third parties, creditors and attachments are concerned. Since there is ample testimony tending to sustain these findings of fact, this court, on appeal, will not disturb the chancellor's findings and decrees. This is so well settled that we do not burden this brief with authorities in support thereof.
Originally a pledge was a common law proceedings, and under the common law a necessary requisite to a valid pledge was absolute, unconditional and inequivocal possession. This proposition is so well known that it is unnecessary to here cite authorities. The statutes of the State of Mississippi make no reference to pledges, therefore, in this state the common-law rule prevails, except as same may have been modified or added to by judicial interpretation.
Bank v. Caperton, 74 Miss. 857, 22 So. 60.
The pledgee should exercise due care to negative the existence of ostensible ownership in the pledgor, and such means should be resorted to as fairly to put third persons on inquiry.
49 C.J. 913, sec. 37; Philadelphia Warehouse Co. v. Winchester, 156 Fed. 600.
As a general rule, if the property remains on the pledgor's premises, the property must be so separated and marked as to give notice of the pledgee's possession to third persons who might deal with the pledgor.
49 C.J. 915, sec. 41.
In the case at bar the alleged pledgee, Ayer Lord Tie Company, failed to do the one thing that would have imparted notice to third persons of its alleged right of possession to the property, namely, it failed to place a sign or placard upon the lumber, and failed to mark same in such manner as would indicate its alleged right of possession or interest therein.
Where physical possession remains with the pledgor, the property must be so handled and marked that notice of the pledge may be imparted to third persons dealing with the pledgor.
Bank v. Chapman, 2 F.2d 203; Spanish American Cork Products Co., 2 F.2d 203; Western Nat. Bank v. Chapman, 266 U.S. 634, 45 S.Ct. 225, 69 L.Ed. 479; Peoples Bank v. Aetna Indemnity Co., 91 Conn. 57, 98 A. 353; Macdonald v. Aetna Indemnity Co., 90 Conn. 415, 97 A. 332; National Bank of Commerce v. Flanagan Mills, etc., Co., 268 Mo. 547, 188 S.W. 117; Island Pond National Bank v. Lacroix, 158 A. 684; 25 F.2d 592; Mill Factors Corp. v. Guardian Trust Co., 154 A. 420; McGaffey Canning Co. v. Bank of America, 294 P. 45.
Price, Price Phillips, of Magnolia, for appellee, Coney.
Counsel argue that there is no such thing as an attachment lien, and that no lien can be created by an attachment. We take issue directly with this contention. Under Mississippi law an attachment lien is created by an attachment and the lien relates back to the time of the attachment. Section 130, Code of 1930. Regardless of what appellant may call it the right created by attachment is called a "lien" by the Mississippi court.
Lowenstein v. Powell, 68 Miss. 73, 8 So. 269; Pfiefer v. Hartman, 60 Miss. 505; Weems v. Love, 74 Miss. 831, 21 So. 915.
Appellees contend that regardless of the purported secret agreement by and between appellant and the Mitchell Company the facts and circumstances entering into and surrounding the transactions between these two parties did not constitute a pledge of the lumber in controversy; that even though the facts and circumstances should establish any sort of lien on the lumber in controversy, which we do not admit, the same facts and circumstances also show that there was such fraud in these transactions as to make them fraudulent and void as to third parties in view of Mitchell's ostensible absolute ownership, possession, control and custody of all of the property on the premises at his Fernwood yards.
The necessary elements of a pledge are: (1) A pledgor and a pledgee. (2) A debt or obligation. (3) A contract of pledge. And in order to constitute a contract of pledge the following elements are necessary: (1) The possession of the pledged property must pass from the pledgor to the pledgee or to some one for him. (2) The legal title to the pledged property must remain in the pledgor. (3) The pledgee must have a lien on the property for the payment of a debt or performance of an obligation due him by the pledgor or some other person. (4) There must be a right of redemption in the pledgor. It may be made upon such terms and conditions as the parties agree upon.
49 C.J. 900, sec. 13; Trenholm v. Myles, 59 So. 930; Gatman v. Ackers, 1 Miss. Dec. 857.
There was not such a delivery of the lumber involved in this controversy as is required by the law relating to pledges. Appellant cannot possibly rely upon an actual delivery of this property, and hence, must rely upon a supposed symbolic delivery of it.
21 R.C.L. 644, secs. 11 and 12; Pinkerton v. Manchester R.R. Co., 42 N.Y. 424; Martin v. Creditors, 15 L. Ann. 165; Nevan v. Roup, 8 Iowa 207; Bank v. Taylor, 172 Fed. 177; Warehousing Co. v. Hand, 206 U.S. 415, 27 S.Ct. 720; Ackerson v. Babcock, 131 Wn. 435, 232 P. 335; Bank v. Nelson, 38 Ga. 391; Bank v. Whitehead, 39 L.R.A. 732; Hastings v. Trust Co., 197 P. 627; Geilfuss v. Corrigan, 95 Wisc. 651, 70 N.W. 306.
Appellant cannot rely upon secret intentions, agreements, etc., for a delivery of the property unless there is an actual change of possession and whether this happens is a question of fact, not of law as appellant contends.
Hastings v. Lincoln Trust Co., 197 P. 627; Warehousing Co. v. Hand, 206 U.S. 415; 21 R.C.L. 643.
Not only must there be an actual change but this change must be a visible one, (Bank v. Nelson, 38 Ga. 391), so as to show the exclusive custody, control and possession in the pledgee.
Bank v. Bank, 226 Penn. 483, 75 A. 683; Bank v. Taylor, 172 Fed. 177; Casey v. Cavaroc, 96 U.S. 467; Geilfuss v. Corrigan, 37 L.R.A. 166; Succession of Lanaux, 15 So. 708; Re N.Y. and Baltimore Transportation Co., 276 Fed. 145.
The possession of the pledges must be continuous; that is, the pledgee must retain possession in order to cut off the rights of other creditors.
Bank v. Whitehead, 39 L.R.A. 732; Bank v. Bradshaw, 136 N.W. 830.
Contrary to the contentions of the appellant the law is that a mere agreement to hold property as security for a debt does not by any means constitute a pledge.
49 C.J. 915, sec. 39; Clanton Bank v. Robinson, 70 So. 270.
All the courts agree that if property stays on the pledgor's premises it should be marked so as to show definitely and distinctly that the pledgee has an interest therein.
Bank v. Chapman, 2 F.2d 203; Security Warehousing Co. v. Hand, 143 F. 32, 74 C.C.A. 186, 206 U.S. 415, 27 S.Ct. 720, 51 L.Ed. 117, 11 Ann. Cas. 789.
The counsel for appellant say that the good faith of appellant and Mitchell should cure all defects in their transactions and are wholly in error in stating that if a contract is good between the parties it binds the whole world. This is new law to us. What about an executory contract to pledge? Moreover, if this is the law, then there could never be a fraudulent conveyance; these are good as between the parties. We say that it makes no difference how many agreements are entered into, nor how much mental resolving is done, nor how much good faith on the part of the pledgor and pledgee in relation to each other enters into the transactions if the requirement of the law of visible, ostensible custody, control, and possession in the pledgee is not complied with.
Bank v. Insurance Co., 193 U.S. 581; McFall v. Warehouse Association, 122 Calif. 468; Geilfuss v. Corrigan, 95 Wisc. 651, 70 N.W. 306; Bank v. Taylor, 172 Fed. 177; Petitions of City of Syracuse, 254 Fed. 660; In re Imperial Textile Co., 255 Fed. 199; Blue v. Herkimer Nat. Bank, 30 F.2d 256; Mechanics' Bank of McComb City, Miss. v. Van Zant, 81 So. 251; Wallace Benedict, Rec. v. Ratner, 69 L.Ed. 991; Bank v. Caperton, 74 Miss. 857.
Not only is it manifest that the transactions between appellant and Mitchell Company wholly failed to establish any sort of lien on the lumber involved in this controversy, particularly one as against third parties with no notice, but this court has refused to recognize any sort of lien in similar transactions.
Bank v. Capterton, 74 Miss. 857, 22 So. 60; Davis v. Lumber Co., 69 Miss. 762, 12 So. 27; Tallahatchie Lbr. Co. v. Hatch, 117 Miss. 260, 78 So. 154; Strong v. Krebs, 63 Miss. 338; Allen v. Montgomery, 48 Miss. 101; Hart v. Livermore Machine Co., 72 Miss. 809, 17 So. 769.
It is true that Mitchell and the agents of appellant did not tell the lower court that they colluded together and intended to defraud these appellees, but it is very apparent from this record that the acts of these parties conclusively establish a chain of circumstances which are as collusive and fraudulent as it was possible to arrange.
Under the decisions of this court even the original deed of trust herein was per se fraudulent and void, Lumber Co. v. Hoyt, 14 So. 464. Certainly then the transferring of this recorded lien to a secret lien leaving Mitchell in the ostensible ownership, custody and control of this lumber was per se fraudulent and the decisions of this court amply sustain this contention.
Hilliard v. Cagle, 46 Miss. 309; Andrews v. Partee, 79 Miss. 80, 29 So. 788; Supply Co. v. Bank, 23 So. 630; McCrory v. Donald, 119 Miss. 256, 80 So. 643; Investment Co. v. Hunt's Garage, 128 Miss. 535, 91 So. 133; Hawkins v. Nash, 163 Miss. 500, 140 So. 522; Joseph v. Levy, 58 Miss. 843; Tallman v. Tutle, 65 Miss. 492; Brittan v. Criswell, 63 Miss. 394; Buggy Co. v. Turley, 73 Miss. 529; Louis v. Bank, 87 So. 176; Security Warehousing Co. v. Hand, 206 U.S. 415, 51 L.Ed. 1117; Simmons v. State, 160 Miss. 582, 135 So. 196.
Directly contrary to contention of appellant the nature of lumber as property situated on a lumber yard and being offered for sale and sold therefrom, as in the case at bar, would bring it within the category of property covered by the Mississippi Sign Statute and the Mississippi Bulk Sales Law.
Coffeeville Bank v. Stone, 153 Miss. 811; Merchants Farmers Bank v. Schaaf, 108 Miss. 121, 66 So. 402; Young v. Terry, 129 Miss. 281, 92 So. 76.
The finding of the trier of the facts, in such cases as this, who has the opportunity to see the witnesses testify and their demeanor, will not be disturbed where there is evidence to support it.
Crichton v. Moore, 154 Miss. 265.
C.T. Gordon, of Liberty, for appellee, R.L. Wilson.
Under a contract by one to sell lumber, sawed by him in this state in a certain year, the buyer, a nonresident, to advance certain amounts when the lumber is sawed and in piles, and complete payment to be made when the lumber is inspected and loaded on the cars, the title does not pass to the buyer upon the piling of the lumber and making of advances, but remains with the seller until full payment.
Thatch v. Tallahatchie Lbr. Co., 117 Miss. 260; Garland v. Chambers, 11 S. M. 337; Summers v. Roos, 47 Miss. 749; Bank v. Caperton, 74 Miss. 859; Hartman v. Hoskins, 56 Miss. 142; Joseph v. Levy, 58 Miss. 843; Briton v. Quiswell, 63 Miss. 394; Baldwin v. Little, 64 Miss. 126; Johnson v. Tuttle, 65 Miss. 492; Bank of Iuka v. Doan, 16 So. 305; Bank of Hazlehurst v. Goodbar Co., 73 Miss. 571; 12 R.C.L. 551.
It is well settled in this state that the mortgage of property consumable in its use with the reservation of possession by the mortgagor, is prima facie fraudulent, and, if the mortgage reserved to the mortgagor the right to use such property, it is per se fraudulent.
Acme Lbr. Co. v. Hoyt, 71 Miss. 106; Farmers Bank v. Douglas, 11 Smedes M. 469; Ewing v. Corgill, 13 Smedes M. 79; Harman v. Hoskins, 56 Miss. 142.
Where a mortgage is void on its face, the beneficiary thereof cannot occupy the relief of bona fide purchasers.
Farmers Bank v. Douglas, 11 Smedes M. 469; Johnson v. Dick, 27 Miss. 277; Newton Oil Mfg. Co. v. Carr, 97 Miss. 234.
We earnestly insist that the appellant acquired neither lien nor title by the bills of sale, and under the business as transacted.
Hart v. Livermore Foundry Machine Co., 72 Miss. 809; First National Bank of Chicago v. Caperton, 74 Miss. 857; Tallahatchie Lbr. Co. v. Thatch, 117 Miss. 260.
According to the generally accepted definition a pledge or pawn is a bailment of personal property as a security for some debt as engagement, redeemable on certain terms, and with an implied power of sale on default.
21 R.C.L. 630 and 632; Trenholm v. Miles, 102 Miss. 835; Harris Co. v. Lombard, 60 Miss. 29; Eckert v. Searcy, 114 Miss. 151; Casey v. Cavaroc, 96 U.S. 467, 24 U.S. (L.Ed.) 399.
In the case now before the court there was no delivery of the possession and the most that could be said of the transactions as between the appellant and the Mitchell Lumber and Tie Company, in the giving of the bills of sales was to try and secure the advances made of eight dollars and twenty-five cents, plus hauling, if any, plus finishing, if any, and plus the one dollar and seventy-five cents stumpage, for when the lumber was sold by Mitchell, these were deducted, and the difference returned to Mitchell.
This court has decided this kind of an arrangement void and fraudulent.
Livermore v. Hart, 72 Miss. 809; Acme Lbr. Co. v. Hoyt, 71 Miss. 106; Bank v. Caperton, 74 Miss. 857; Tallahatchie Lbr. Co. v. Thatch, 117 Miss. 260.
The appellant first claimed a lien or title to the lumber by virtue of the mortgages, contracts, and bills of sale, and in the contracts, said title was in Ayer Lord Tie Company, and further contracted that it must have full and complete control over the cutting, manufacture and sale of the lumber. This is the case their pleading makes and it is borne out by the testimony of the witnesses. This being true the sign statute does apply as it was the plan, scheme, and arrangements of the appellant that the Mitchell Lumber Tie Company would bear all of the expense of every nature in the purchase, logging and manufacture of the lumber and would to the world appear as owner of the lumber, and the only liability of the appellant would be the amount it would agree arbitrarily to advance for manufacturing cost. This causes the rule as laid down by this court in the following cases to apply:
Howe v. Kerr, 69 Miss. 311; Hunter v. Forest, 115 Miss. 7; Gunbel v. Koon, 59 Miss. 264; Herman Co. v. Robinson, 65 Miss. 169; Cotton Gin Co. v. Berg, 65 Miss. 189; Evans Bright v. Henly Carroll, 66 Miss. 153; Quin v. Myles, 59 Miss. 264; Wolf v. Morx Kahn, 62 Miss. 816.
C.T. Gordon, of Liberty, Price McLain, of McComb, and Price, Price Phillips, of Magnolia, for appellees.
In Coffeeville Bank v. Stone, 151 Miss. 482, 118 So. 413, transactions very similar to those in the case at bar, with the exception that the evidence of the lien therein was acknowledged and recorded, were held to be fraudulent and void as to other creditors, because the debtor was held out as the absolute ostensible owner of the property and by this means was able to obtain a fictitious credit all because of the conduct of the two parties to the transaction. On a suggestion of error in this case, 153 Miss. 811, 121 So. 896, the court indirectly held that lumber was merchandise, or stock in trade, so as to come within that line of cases holding that an acknowledged and recorded deed of trust on a stock of goods or merchandise which is being added to and sold from by the debtor, and allowed to remain ostensibly wholly in his possession, on the basis of which he gets credit from innocent parties, is fraudulent and void as to the latter.
Box v. Love, 154 Miss. 106, 121 So. 850; Harman v. Hoskins, 56 Miss. 142.
In Acme Lumber Co. v. Hoyt, 71 Miss. 106, 14 So. 464, this court again declared an arrangement similar to the one in the case at bar fraudulent and void as to innocent third parties.
Oil Co. v. Carr, 97 Miss. 234, 52 So. 353; Simmons v. State, 160 Miss. 582, 135 So. 196; Tallman v. Tuttle, 65 Miss. 492, 4 So. 553.
Furthermore, the innocence of the creditor as to any evil design morally did not aid the conveyance.
Bank v. Douglas, 11 S. M. 467; Charlotte Supply Co. v. Bank, 23 So. 630.
Where security is given for a pre-existing debt, regardless of the law in other jurisdictions, the Mississippi court holds that the secured creditor therein is not a bona fide purchaser for value and such a conveyance is voluntary.
Pope v. Pope, 40 Miss. 516; Ames v. Dorroh, 76 Miss. 187, 23 So. 768; Thompson v. Furr, 57 Miss. 478.
In such a case the debtor holds his property in trust for his creditors under the theory of trustee ex male officio.
Ames v. Dorroh, 76 Miss. 187, 23 So. 768.
Now, contrary to the apparent assumptions of counsel for appellant, a pledge is a bailment and the law of pledges is a branch of the law of bailments. A bailment is a real contract, that is, a contract based upon a thing and the transfer of its possession, rather than a consensual agreement or contract based on mutual promises. Thus, a pledge cannot, and will not, be created by operation of law any more than any other contract creating a lien on specific property based upon an actual transfer of possession and custody of the property itself. Hence, the relation of bailor and bailee, or pledgor and pledgee, does not commence until there is an actual transfer of a thing in esse for the specific avowed purpose of securing a debt.
Trenholm v. Miles, 102 Miss. 835, 59 So. 930.
There is not a single provision in this purported verbal contract testified to by appellant's witnesses which provides that this lumber is to be delivered, held or controlled by appellant for the purpose of securing any sort of a debt and neither is sufficient to create a pledge without the other.
Regardless of what we call this new agreement to transfer all of Mitchell's operations to appellant, the result, and the law applicable, is the same. Mitchell said it was an agreement at that time for the purpose of working it out so that everybody would be paid, and appellant apparently by its acts construed it to mean a preference to it. It is positively beyond dispute that Mitchell was to receive, and did receive, large monetary benefits from the sale of the specific property transferred.
The Mississippi court has in numerous cases announced the law applicable to such facts and circumstances to the effect that such an arrangement or transfer comes within the specific exception recognized in the cases cited by appellant, by being absolutely fraudulent and void without regard to the intent and purpose of the parties. This court has frequently held that in such a case as this, either of two tests may be applied to defeat the transfer or assignment, namely: (1) Has any profit or benefit been reserved or accrued to the transferor or grantor? or, (2) Does the transfer, conveyance or other instrument contain stipulations which render its execution in a reasonable time impossible or difficult?
The test first above stated applied to the case at bar makes the transfer by Mitchell to appellant on August 27, 1934, of all of his operations wherever located absolutely fraudulent and void as to other creditors, regardless of the intent of the parties in making or accepting such transfers, and regardless of the name by which we may call it.
Henderson v. Downing, 24 Miss. 106; Craft v. Bloom, 59 Miss. 69; Marks v. Bradley, 69 Miss. 1, 10 So. 922; Hiller v. Ellis, 72 Miss. 701, 18 So. 95.
If the theory of equitable estoppel as announced by this court in Express Agency v. Bank, 160 Miss. 279, 150 So. 525; Hart v. Livermore Foundry Co., 72 Miss. 809, 17 So. 769; Hall v. Box, 131 Miss. 218, 94 So. 221; Wilkinson v. Love, 149 Miss. 523, 115 So. 707; Clarke v. Dorsett, 157 Miss. 365, 128 So. 79, was ever properly applied, it seems to us that the case at bar is one for its application.
In Hilliard v. Cagle, 46 Miss. 309, the leading case on this theory in Mississippi, this court said that where a creditor took a deed of trust on a debtor's property allowing the debtor to remain in complete possession of it and held the deed of trust off the record for some time, and during this interval innocent third parties extending the debtor credit on the faith of his ostensible possession and ownership of the property, the creditor mortgagee would be precluded from taking advantage of his deed of trust for the reason that by his negligence he had fairly induced an innocent third party to believe in the existence of a certain state of facts which the mortgagee later claimed did not exist; thus, he was estopped in equity to assert this later claim and take advantage of the recording of the instrument after the loss, injury and damage from his negligence had been occasioned to these innocent creditors. In the case at bar the appellees as innocent creditors had not only extended general credit to Mitchell, but, by means of their extending credit he was enabled to obtain necessary supplies for the carrying on of his operations which in turn was necessary if he was to perform his agreement with the appellant to pay back his old debt out of the sales of lumber which he would manufacture.
Argued orally by J.N. Flowers and Hugh V. Wall, for appellant, and by O.W. Phillips and C.T. Gordon, for appellees.
This is an appeal from a decree denying the appellant's claim to a lien on lumber of another attached by appellees. The appellees sued out attachments at law on lumber owned by the Mitchell Lumber Tie Company, after which the property of that company was put, by the chancery court, the one below, in the hands of a receiver, and on petition therefor the attachment cases were removed to the chancery court, where the pleadings were reshaped by the filing of bills of complaint by the appellees, setting up the debts due them by the Mitchell Lumber Tie Company, and the levy of the attachments sued out by them against that company on the lumber. The receiver and the Mitchell Lumber Tie Company were made defendants to the bills of complaint, and having failed to appear and plead, answer, or demur thereto, a decree pro confesso was rendered against them, followed by a final decree which directed the receiver to hold the property "subject to the further order of the court to satisfy said indebtedness and attachment lien, and further that the priority of this complainant's lien and the rights of other attaching creditors or lien holders is not adjudicated by this decree, but the same will be determined by further order of this court." By permission of the court the Wood Preserving Corporation intervened by petition alleging, in substance, that it had a lien on the lumber prior to the complainants' attachment liens, for the reason that when the attachments were levied it was in possession of the lumber under a pledge thereof for the security of a debt due it by the Mitchell Lumber Tie Company. The allegations of this petition were denied by the appellees, and the case was heard by the court on evidence, resulting in decrees that the appellees' attachment liens were prior to that of the appellant and dismissing its petition of intervention.
The pertinent facts disclosed by the record are, in substance, as follows: In 1933 W.L. Mitchell was indebted to the Ayer Lord Tie Company in an amount said to be in excess of fifty thousand dollars. Mitchell owned practically all of the stock of the Mitchell Lumber Tie Company, and was its president and general manager. In order to collect this indebtedness, an agreement was entered into between the Ayer Lord Tie Company and the Mitchell Lumber Tie Company, which will hereafter be designated as the Mitchell Company, that the Mitchell Company would enter into the business of manufacturing and selling lumber, the business to be financed by the Ayer Lord Tie Company by it advancing to the Mitchell Company money sufficient to enable it to cut and manufacture the lumber, from the proceeds of which the Ayer Lord Tie Company was to be reimbursed for the advancements made, and a small per cent. of the proceeds thereof was to be applied to the payment of the old indebtedness due it by Mitchell. The Mitchell Company would cut timber acquired by it, when, but not until, orders for lumber to be manufactured therefrom were approved by the Ayer Lord Tie Company, and by the use of portable sawmills would manufacture it into lumber and stack it on ground adjacent to the mills; at intervals of two or three weeks a representative of the Ayer Lord Tie Company would check the lumber and give the Mitchell Company a draft on the Ayer Lord Tie Company for an amount estimated to be sufficient to pay the then incurred expenses of manufacturing the lumber. To these drafts would be attached bills of sale to the Ayer Lord Tie Company for the lumber against which the drafts were issued; but we will assume that these bills of sale were defective and did not of themselves vest the Ayer Lord Tie Company with the title to the lumber. Thereafter the appellant, through its representatives, kept the lumber under its observation, but the Mitchell Company was not excluded from access thereto, and we will assume that the evidence does not disclose a sufficient change of the possession of the lumber to render the attempted pledge thereof complete, though Mitchell, who testified for the appellant, said: "As to the control and possession of it, I gave it to them." The lumber was insured against loss by fire, each policy stipulating that "loss, if any, under this policy is hereby made payable to the Ayer Lord Tie Company . . . as their interest may appear." Under the agreement the Mitchell Company was not thereafter to deal with the lumber, except as follows: It would transport the lumber to a planing mill operated by it at Fernwood (the expense of which would be advanced by the Ayer Lord Tie Company), where the lumber would be again stacked, and after it had been planed would be shipped to the purchasers; invoices therefor would then be assigned by the Mitchell Company to the Ayer Lord Tie Company, which would pay the Mitchell Company the difference between the advances received by it thereon from the Ayer Lord Tie Company, plus a small per cent. of Mitchell's old debt to the Ayer Lord Tie Company, which company would then collect from the purchasers for the lumber.
During the course of these operations the appellant, the Wood Preserving Corporation, succeeded to the rights and interest of the Ayer Lord Tie Company under its agreement with the Mitchell Company, and thereafter the lumber was dealt with as it had been theretofore, except that the appellant was substituted for and discharged the obligations of the Ayer Lord Tie Company under its agreement with the Mitchell Company. On August 27, 1934, because its "finances had come to a halt," the Mitchell Company agreed to deliver possession of the lumber then stacked on the yards at its Fernwood mill, together with the mill, to the appellant, which agreed to plane the lumber, deliver it to the purchasers who had contracted therefor, collect from them the money due therefor, and deal with this money as hereinbefore outlined. Pursuant to this agreement the Mitchell Company delivered the lumber and mill into the exclusive possession of an agent of the appellant, who, acting for the appellant, proceeded with the planing of the lumber and disposed of it, as provided in the agreement, until September 8, 1934, when the first of these attachments was levied, whereupon it suspended operations and, as hereinbefore stated, the business of the Mitchell Company, including the possession of the lumber, passed into the hands of a receiver. We will assume that the evidence disclosed that the possession of the lumber and of the planing mill, as hereinbefore stated, by the appellant was to be of temporary duration, i.e., that thereafter if the Mitchell Company should be in position to resume business, possession thereof would be restored to it and the lumber would then be thereafter dealt with as it had been prior to August 27, 1934.
The appellant's claim is that when the attachments were levied the lumber was then in its possession under a pledge thereof to secure the advances made thereon by it to the Mitchell Company, and the money to be applied from the proceeds of the lumber to the payment of the old Ayer Lord Tie Company debt. It is clear from the evidence that at the inception of the dealings hereinbefore set forth between the Mitchell Company and the Ayer Lord Tie Company, to whose interest the appellant has succeeded, it was the intention of both parties that the Ayer Lord Tie Company would be paid for its advances to the Mitchell Company out of the proceeds of the lumber which would be pledged to the Ayer Lord Tie Company as security for the advances. We will assume that this pledge agreement, up to August 27, 1934, was defective in that there was no delivery of the possession of the lumber to the pledgee. The subsequent delivery thereof to the appellant, however, cured this defect, for when the first attachment here was levied, the appellant was in possession of the property pursuant to the pledge agreement. Jones on Pledges, section 39; 49 C.J. 912.
That the possession of the lumber and planing mill was to be returned to the Mitchell Company when it should thereafter be in position to resume business is of no consequence, for while the lumber was in the appellant's possession pursuant to the agreement that it should be its security for the advances made by it to the Mitchell Company, the pledge was complete for the time being, although it might thereafter again become incomplete by the redelivery of such possession to the Mitchell Company.
It is said by counsel for the appellee, that the court below so held, that this pledge agreement was by collusion of the parties thereto for the purpose of enabling the Mitchell Company to place its property beyond the reach of its general creditors. There is nothing in the evidence warranting this charge. But counsel for the appellee also say that under section 3352, Code of 1930, the lumber must be held to have been the property of the Mitchell Company when the attachments were levied, and therefore the attachments became a prior lien thereon. Assuming for the purpose of the argument that the business transacted by the Mitchell Company was within the provisions of this statute, nevertheless it does not apply here, for it does not prevent such a person from selling or pledging property used and acquired by him in his business, and when a pledge thereof becomes complete by the delivery of the possession of the property to the pledgee the only right the pledgor's general creditors have therein is (in a proper proceeding therefor) to subject the interest of the pledgor remaining therein to the payment of the debts due them by the pledgor.
The court below should not have dismissed the appellant's claim to a prior lien on the lumber, but should have sustained it and thereafter proceeded with the receivership proceedings accordingly. The decrees of the court below will be reversed, and a decree will be rendered here adjudging the appellant's lien to be prior to that of each of the appellees, and the cause will be remanded for further proceedings not inconsistent with this opinion.
So ordered.