Case Name: J. R. SNEEDEN et al. v. NURNBERGER'S MARKET
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1926-11-03
Citations: 192 N.C. 439
Docket Number: 
Parties: J. R. SNEEDEN et al. v. NURNBERGER’S MARKET.
Judges: 
Reporter: North Carolina Reports
Volume: 192
Pages: 439–442

Head Matter:
J. R. SNEEDEN et al. v. NURNBERGER’S MARKET.
(Filed 3 November, 1926.)
1. Chattel Mortgages — Definition—Choses in Action.
A chattel mortgage is a conditional transfer of the property pledged, vesting the title in the mortgagee absolutely in law upon condition broken, and as against purchasers and creditors must be registered. C. S., 3311.
3. Debtor and. Creditor — Pledges of Personal Property — Possession.
A mere pledge of personalty for the payment of a debt, as distinguished from a chattel mortgage, passes the actual or constructive possession in the pledgee, or at most, a special property in the pledge with a right of retainer by the pledgee until the debt is paid.
3. Same — Principal and Agent.
Where the pledgee of personal property delivers the possession to the pledgor for the purpose of selling it and applying the proceeds to the payment of the debt, the pledgee is in constructive possession of the thing pledged under the principal of agency.
4. Same.
Where the pledgee has assigned to him certain book accounts and other choses in action to be collected by the pledgor and paid to him in the event of the latter’s failure to pay for supplies weekly furnished by the former in certain amounts as to value, and permits the pledgor to mingle the moneys thus collected with his general funds until condition broken, whether the written instrument containing this contract of sale be recorded as an unregistered chattel mortgage or mere pledge: Held, it is invalid as a preference against the general creditors of the pledgee.
Appeal by Swift & Company, intervening petitioner, from Mid-yette, J., at April Term, 1926, of New HaNoveb. '
Tbe plaintiffs brought suit on behalf of themselves and .all other creditors of the defendant for the collection of $253.34, and the appointment of a receiver of the defendant’s business. Trial by jury was waived and the trial judge found the facts.
On Y October, 1924, the defendant in writing assigned to Swift & Company all its book debts, accounts, and choses in action then due or to become due from designated customers of the defendant, together with a trust receipt, and received from Swift & Company a letter interpreting the receipt. The defendant’s total indebtedness is approximately $10,000; the amount due Swift & Company is $2,594.85; and the total amount for distribution is about $1,300.
The receiver contended on the hearing that the assignment to Swift & Company constituted a preference under C. S., 1611, or if not, then a mortgage, and was invalid because not registered as required by section 3311.
It was adjudged tbat tbe intervening petitioner, Swift & Company, bad a valid unsecured claim against tbe defendant for $2,594.85, but no lien or preference upon tbe assigned accounts, and tbat tbe proceeds from tbe collection of tbe accounts are general assets in tbe bands of tbe receiver.
Swift & Company excepted and appealed.
Rountree & Carr for appellant.
Bellamy & Bellamy for receiver.

Opinion:
Adams, J.
On 7 October, 1924, tbe defendant executed a written instrument by wbicb it assigned and transferred to Swift & Company all tbe accounts and cboses in action tben due it by its customers or at any time thereafter to become due, and authorized tbe assignee to collect tbe respective sums as they matured, tbe assignment being "continuing security" for tbe defendant's present and prospective indebtedness to tbe assignee. Tbe defendant tben executed a "trust receipt" acknowledging possession of tbe assigned papers for tbe purpose of collection and remittance to Swift & Company, who at tbe same time wrote and delivered to tbe defendant a letter purporting to interpret tbe receipt just given. These three papers bear tbe same date and constitute one transaction. Neither of them was registered; and it was held by tbe trial court tbat tbe unregistered assignment was not enforceable against tbe defendant's general creditors. C. S., 3311.
This conclusion was no doubt based on tbe theory tbat tbe papers in question constitute a chattel mortgage of cboses in action, as contended by tbe creditors; but tbe appellant argues tbat tbe papers constitute a pledge to secure a preexisting debt.
In construing particular statutes, some of the courts have held tbat a chose in action is not tbe subject of a chattel mortgage, but in tbe absence of statutory restrictions, tbe general rule seems to be otherwise. 11 C. J., 433, see. 43. While it is not necessary now to decide tbe question, we refer to Wallston v. Braswell, 54 N. C., 137, in wbicb it was observed tbat no provision bad been made in reference to tbe counties in wbicb a deed of trust on cboses in action should be' registered, and to tbe clause relating to tbe subject in tbe amended statute. C. S., 3311.
While a debt may be secured by a mortgage or by a pledge of personal property, between a mortgage and a pledge there is a recognized and approved distinction. Tbe former is a conditional transfer or conveyance of tbe property itself; and if tbe condition is not performed, tbe title vests absolutely at law in tbe mortgagee; tbe latter passes tbe possession of tbe property, or at most a special property in tbe pledge, with a right of retainer until tbe debt is paid. Doak v. Bank, 28 N. C., 309; Ball-Thrash v. McCormick, 162 N. C., 471.
To make a valid pledge, tbe pledgee's actual or constructive possession of tbe article is essential and as a rule restoration of possession to tbe pledgor is inconsistent witb tbe pledge. Tbe principle is treated in Barrett v. Cole, 49 N. C., 40. There one Due, being indebted to tbe plaintiff, delivered to bim a borse as security for a debt and immediately tbe possession was restored to Due. Tbe borse was sold by an officer under process against Due at tbe instance of tbe defendant Tyson, wbo was tbe plaintiff in tbe execution. Tbe Court said: "Tbe contract between Due and tbe plaintiff, by wbicb tbe borse in question was delivered to tbe latter, for tbe purpose of securing a debt wbicb Due owed bim, was undoubtedly intended by tbe parties as a security for money, and must bave been either a mortgage or a pledge. If it were a mortgage, it was clearly void as against creditors, because not in writing, and proved and registered within six months as required by law. Rev. Stat., ch. 37, sec. 23; (Rev. Code, ch. 37, sec. 22). If it were a pawn or pledge, we think that it was equally void as against tbe creditors, because tbe possession, instead of being retained by tbe pawnee, was immediately restored to tbe pawnor."
To tbe same effect are Smith v. Sasser, 49 N. C., 43, and Owens v. Kinsey, 52 N. C., 245. In Bodenhammer v. Newsom, 50 N. C., 107, it is said: "Tbe only difference between tbe facts of that case (Smith v. Sasser) and tbe present is tbe length of time during wbicb tbe pawnor bad tbe article in possession, after a redelivery by tbe pawnee, before be sold it. But that cannot make any difference in tbe rule of law applicable to tbe transaction. By giving up tbe possession of tbe article pawned, tbe pawnee lost bis lien, and it would be a fraud upon an innocent purchaser from tbe pawnor if tbe pawnee were permitted to recover tbe pawn from bim."
But to this general rule there are exceptions; one is, that tbe pledgee may redeliver tbe property to tbe pledgor for tbe purpose of having it sold for tbe benefit of tbe pledgee. So it was held in Rose v. Coble, 61 N. C., 517: "It is true that to tbe validity of a pledge it is necessary that there should be a delivery to tbe pledgee, and that bis possession should continue, and that tbe pledge is lost by giving tbe pledgor tbe control of it. But tbe fact that tbe pledgee authorized tbe pledgor, as bis agent, to take tbe mare to Greensboro to try to sell her to raise money to pay tbe debt for wbicb she was pledged, does not contravene that rule, because tbe possession of tbe agent was the possession of tbe principal."
If it be conceded for the purpose of argument that tbe three papers taken together make a pledge, does it appear therein that tbe appellant appointed tbe defendant its agent within tbe scope of tbe principle just stated ?
In tbe appellant's letter purporting to interpret tbe "trust receipt" was an instruction that tbe defendant need not keep tbe trust funds arising from collections on the assigned accounts separate from its own funds so long as the defendant paid Swift & Company $150 each week. Conditioned upon making this payment, the defendant was to have credit with the company in the sum of $250 a week, and was to keep the "trust fund" separate from its own only in the event it should make default in its payments.
It is useless to deny that the trust receipt and the letter of interpretation are much more than the creation of a bare agency for the collection of the accounts. Such a course of business is utterly inconsistent with the idea that the defendant retained the accounts only for the purpose of collecting them as the pledgee's agent. The market was to continue its business under a secret trust agreement with the appellant. What means of information had the defendant's creditors as to the actual relation existing between the contracting parties? Would they have extended credit with knowledge of this relation? The object of the rule in reference to the pledgee's retaining possession is to prevent the pledgor from inducing the belief that he is the owner of the pledge. This object was defeated by a device, whatever the' intention of the parties may have been. The pledgee consented to the intermixture of pledged with unpledged funds and did not retain the sole possession of the assigned accounts, or in any event did not retain such possession as is required to reserve the pledgee's lien.
So, whether the contract be construed as a mortgage or a pledge, the result is the same. If a mortgage, it was voidable as to the defendant's creditors because it was not registered; it was not enforceable as a pledge because the lien was not maintained. Quacunque via, the judgment must be affirmed. Moors v. Reading, 167 Mass., 322, 57 A. S. R., 460; Casey v. Cavarock, 96 U. S., 467, 24 L. Ed., 779.
Affirmed.