after stating the case, delivered the opinion of the court.
The substance of the agreement in this case, so far as neces.sary tó be considered, was, that the Credit Mobilier should accept the drafts of the banking association to the amount of ■a million of francs at ninety days, the bank agreeing to furnish funds to pay the drafts at maturity, with the privilege of a renewal; and it was stipulated that this obligation of the bant should be guaranteed by Cavaroc & Co., and by a deposit witl them, for the use of the Credit Mobilier, of first-class securities of which deposit the latter was to be advised.
This arrangement was immediately telegraphed to New Orleans, and the drafts were drawn on the 12th of July; but the weight of the evidence is, that none of the collateral securities were delivered until the 19th of August, — which might raise a question whether the accommodation acceptances of the Credit Mobilier could be considered as a contemporary, consideration therefor; or, if not, whether the bank was at that time, *476 in the apprehension of Cavaroc (the common agent), in a condition of solvency ancf good credit, — as to which ah affirmative answer could not well be given, since the proof is quite clear that the bank was then struggling with serious financial difficulties, from which it never recovered.
Waiving this question,-however, for the present, we will proceed to examine whether, supposing, that no objection arises from the time when this transaction took place, it amounted to such a transfer or pledge of the' securities in question as to entitle the Credit Mobilier to a preference upon them over, the other creditors of the bank at the.time of its failure. Was there such a delivery and- retention of possession of the collateral securities as to constitute a valid pledge by' the la\v of ■ Louisiana ? Clearly they were never ' out of the possession of the officers of the bank, and were never out of the bank for a single moment, but were always subject to its disposal in' any manner whatever, whether by collection, renewal, substitution, or exchange; and collections, when made, were made for the benefit' of the bank, and not that of the Credit Mobilier.
The case has some features in common with, though differing in others fróm, that of
Clarke
v.
Iselin
(
The case of Clarke v. Iselin, being a New York case, and governed by New York law, or the common law as understood in. New York,, the authority cited- was necessarily of great *477 weight, if not. controlling. When, as in that case, the title has been transferred to the creditor, and the collections are made for his benefit, the pledgor merely acting as his servant or agent in making them, the character of the security is not affected at the common law by the debtor having actual possession of the collaterals, there being no fraud in the transaction. In such case, they are held by the creditor by way of mortgage as well as pledge; and a mortgage is valid notwithstanding the mortgagor has the possession.. The difference ordinarily recognized between a mortgage and a pledge is, that title is transferred by the former, and possession by the latter. Indeed, possession may. be considered as of the very essence of a pledge (Pothier, Nantissement, 8); and if possession be pnce given up, the pledge, as such, is extinguished. 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 tíill of lading is of that kind. Such an assignment is necessary, where a pledge is proposed, in order to give the constructive possession required to constitute a pledge; and yet it formally transfers the title also. 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.
This advantage exists when notes and bills are transferred to a creditor by way of collateral security. His possession of them gives them the character of a pledge. Their indorsement if payable to order, or their delivery if payable to bearer, gives him the title also, which is something more than a pledge. This double title existed in White v. Platt and in Clarke v. Iselin. lienee the actual possession of the securities by the creditor was a matter of less, importance in those cases.
Whether constructive possession in the creditor can be affirmed, where an article to which his only title is that of pledge is actually, re-delivered to the debtor, with general *478 authority to dispose of it and substitute another article of equal -value in its place, is the question which we have to meet in this case. Such a redelivery for a'mere témporary purpose, as for shoeing a horse which has been pledged and is owned by the farrier, or for repairing a carriage which has been pledged and is owned by the carriage-maker, does not .amount to an interruption of the pledgee’s possession. The' owner is but a mere special bailee- for the creditor. So, when the debtor- is employed in the creditor’s service, his temporary use of the pledged- article in the creditor’s business does not effect a restoration of the possession to the debtor. -This is in accordance ' both with the common and the civil law. Reeves v. Capper (5 Bing. N. C. 136) was a case of this kind. A sea-captain pledged his ■ chronometer for a debt. He was afterwards em- • ployed by. the pledgee as. master of one of his ships, and the chronometer was placed in his charge, to be used on the voyage. It was held that the possession of the pledgee was not lost. He recovered the chronometer against a person to whom the master pledged it a second time.
In
Hays
v.
Riddle
(1 Sandf. (N. Y.) 248), the' plaintiff delivered to the defendant, át his request, a convertible bond of the New York and Erie Railroad Company (which had been pledged by the latter to the former), in order to get it exchanged for stock of the same company, which stock was- to be returned and substituted for the bond in pledge. The defendant never returned either the bond or the stock. The plaintiff brought an action of trover against him for the bond, and recovered its value, being less than the deb for ’which it was pledged. It being objected that by delivering back the bond to the pledgor the plaintiff had lost his special property in it as pledgee, the • court said: “At common law, as a general rule, the positive delivery back of the possession of the thing, with the consent of the pledgee, terminates his title.
In Macomber v. Parker (14 Pick. (Mass.) 497), referred to in the last' case, the proprietors of a brickyard contracted it out on shares to a brickmaker, agreeing to advance the money requisite to carry on the manufacture of bricks, and, after being . repaid their advances, to divide the profits with the latter. It was agreed that the bricks, as fast as made, should be pledged to the owners of the yard as security for their advances ;■ but the brickmaker was to keep them in his eharge, and sell them at retail, and as often.as he got the amount of a hundred dollars from the sales he was to deposit it in bank to the credit of the owners. The bricks were afterwards attached as to the share of the maker for'his debts. But the court held that the owners of the yard had not, b.y leaving the bricks in the hands, of the maker, lost their lien as pledgees of the entire property. They remark: “To say that this limited authority to sell the bricks by retail, in small sums, on account of the plaintiffs, was a waiver of their possession of' the residue that remained in the kilns in their yard, would be clearly against the intent and meaning of the .parties, unreasonable, and unwarranted Iby the evidence.” Again: “ The- special authority given by the plaintiffs to Evans [the brickmaker] was to clothe him with the character of agent to a limited extent only, and no remission to him, in his character of pledgor, of the plaintiffs’ right to retain the bricks according to the agreement.” To the objection that retention of possession by the pledgor would have the effect to deceive those dealing with him, the court said: “If the vendor or the pledgor should have the actual possession of the property after it were pledged or sold, it would only be prima facie, but not conclusive, evidence of fraud. The matter might be explained and proved to be for the vendee or pledgee. It is a most familiar principle, that one man may have the actual possession or custody, while another has the legal title and the constructive possession.”
In this case, it will be observed, the pledgees were joint owners of the brick, and were owners of the premises on which the bricks were kept; and the decision was undoubtedly cor *480 rect But, in the general remarks made by tbe court, there is manifest, as in many other cases, a-tendency to confound the distinction between cages in which the title is in the creditor, and those in .which his wholé interest depends on possession. All the cases cited,' however, show that a bailment to the pledgor for a mere temporary purpose for the use of the pledgee, or for the repair and conservation of the pledge, will not destroy the latter’s possession; at the same time, they imply that a redelivery to the pledgor, except for- the special and temporary purposes indicated, divests the possession of the pledgee, and destroys the pledge.
The civil law, which is more particularly our guide in the present case, is to the same general' effect; though it is more careful in denouncing the danger of losing the right of pledge by parting with any thing like permanent or continued possession to the pledgor; and it preserves very clearly the distinction between pledge and hypothecation, or mortgage. The old civil law of the Digest, it is true, was more indulgent, and permitted the pledge to be delivered to the pledgor without prejudice to the security, in a manner that would not be allowed at the present day. Thus, in book xiii. of the Digest, title vii., law 35,' Modestinüs says: “ A.pledge transfers only the possession to the creditor, the property remaining in the debtor; yet the debtor may have the use of it, either as a gratuity, or for hire.” And Paulus, in the same title, law 37, says: “ If I.lend a pledge to the owner thereof, I retain possession by means of the loan; for before the debtor borrowed it, the possession was ■ not in him; and when he borrowed it, it was my intention still to retain the possession, and it was not his to acquire it.” Pothier’s Pandects, vol. vii. p. 360.
As to this law of- the Digest, Mr. Bell, in his Commentaries .on the Scotch Law, remarks as follows: “Voet very justly observes, in criticising this law, that to permit' such practices were to endanger the safety of other creditors, and to sanction a fraud upon the rule which requires possession to complete a real right to movables; and that no true analogy can hold between the law of .'Rome, where hypothecs without possession were admitted, and the laws of modern commercial nations, in which the rule is established that possession preserves property. *481 It is true,” Bell continues, “that, in the-course of many contracts, there is a, necessity for separating property and possession ; '.and that the mere -circumstance of goods being in- the hands of another on a temporary contract will not deprive the real proprietor of his right, in favor of the creditors of the temporary. possessor. And there' seems to be no doubt that the right of a pledgee will also be sufficiently strong to support this temporary dereliction of possession, in the course of necessary operations on it; the manufacturer, or other holder, being custodier for the pledgee, 'without injury to the real security. But the doctrine delivered by Voet is sound, where the possession is given up without necessity to the owner of the goods.” 2 Bell, Com. (7th ed.), p. 22.
The modern French law, governed b.y a similar policy, has been put. into a very explicit form in the Civil Code, which has been followed in the Civil Code of Louisiana. A quotation of some of the principal articles, bearing on this subject, will show the -care taken to require distinct possession in the pledgee.
Art. 3158 (Rev. Civ. Code La.), relating to movables, ■ is as follows: “ This privilege ” [namely, that of pledge] “ shall take place against third persons, only in case the pawn is .proved by an act made either in a public form, or under private signature : Provided, that in this last case it should be duly registered in the office of a notary-public at a time not suspicious: Provided also, that, whatever may be the form of the act, it mentions the amount of the debt as well, as the species and nature of the thing given in pledge, or has a statement annexed thereto of its number, weight, and measure.” This article is copied’from art. 2074 of the Code Napoleon.
As to negotiable securities,, the Louisiana Code, by -art. 3161, provided that a regular transfer by.indorsement should be sufficient. But by a subsequent act, passed in 1852, and re-enacted March 15, 1855, it was provided “ that where' a debtor wishes to pawn promissory notes, bills of exchange, stocks, obligations, or claims upon other persons, he shall deliver to the creditors the notes, bills of exchange, certificates of stock, of other ■ evidences of the claims or rights so pawned; and such pawn so - made, without further formalities, shall be valid as well against third persons as against the pledgors thereof, if made in good *482 faith.” A question was made/ on the argument whether this statute was in force in 1873, when the transaction in question took place. Without giving our reasons at present, it is sufficient to say that we are satisfied that the act was in force at that time.
The next article, 3162, which is not affected by the statute, and which is copied from art. 2076 of the Code Napoleon, is important, and is in these words: “ In no case does this privilege subsist in the pledge except when the thing pledged, if it be a corporeal movable, or the evidence of the debt, if it be a note or other obligation under private signature, has been actually put and remained in the possession of the creditor, or of a third person agreed on by the parties.”
As might be supposed, this article has formed the subject of much discussion by the commentators. Troplong says: “The pledgee has this privilege only on the condition of being possessed of the thing. This condition was expressly imposed upon him by art. 181 of the Custom of Paris. This is reproduced by art. 2102, No. 2, of the Code Civil, and we shall' specially discuss it in the commentary on art. 2076. Possession is indispensable to him. It withdraws the thing from the hands of the debtpr and from the actions of creditors, and sets it aside in a privileged situation. ‘•Possidentis melior est conditio.’ Possession is the most sure foundation, and the most striking index of his privilege. Without it, the creditor would have no ground for escaping the law of contribution. Casaregis says, ‘ Preference'is accorded to a pledgee .on the thing pledged, because he has it in his own hands.’
“ This possession ought to be certain and not equivocal. If it is ambiguous, if the things pledged have been so placed as to deceive the other creditors, and to lead them to believe that the debtor always continued the possessor, the pledge would be endangered.”
Troplong shows, however, that this possession may be a. civil possession, as where the ■ delivery is made by the transfer o'f a bill of lading of goods on board a ship, &c. Troplong, Nantissement, arts. 97-99.
The .^ame author, in commenting on art. 2076, after treating of the absolute necessity of possession by the pledgee, in order *483 to constitute the relation of pledge, and after discussing the different forms of possession, actual and constructive, adapted to the nature and situation of the thing pledged, proceeds (Nantissement, No. 309) to treat of the manner in which it may be in the hands of the pledgor without destroying the possession and right of th'e'pledgee. He says: “ Though the merchandise be deposited in the creditor’s storehouse, it may still need the Gare of the debtor. Then it is not forbidden to stipulate that he shall continue to attend to if in the interest of the creditor. The important thing is, that this clause does not cover a fraud. Aside from this, the possession of the creditor is not incompatible with a certain co-operation of the.debtor, — being for the conservation of the thing,' — he still being the owner. The creditor does not any the less continue exclusive possessor of the thing. The debtor is none the less dispossessed of it.” He then gives some.cases by way of illustration. For example: —
In 1839, Morin & Co., of Beaune, pledged to Weiland & Co., of Baden, sixty thousand bottles of sparkling Burgundy, for a debt. The wine was delivered to an agent of Weiland & Co., and deposited in a vault hired by him for the purpose. , It was agreed that Morin & Co. should give the.wine all necessary care, in presence of the agent, who was to keep the keys of the vault. But, to facilitate matters, it sometimes happened that the agent gave the keys to Morin & Co.; and once, in 1840, the latter removed some of the bottles of wine to their own premises. Morin &'Co. having failed, their assignees (syndics) insisted that the pledge was null and void, because the debtors were not dispossessed of the wine. But Weiland & Co. having renounced their privilege on the wines which had been removed, were sustained by the highest court in their claim to the remainder. It was held that the special character of' the wine, and the difficulty of finding persons qualified to take proper care of it, were sufficient reasons for employing Morin & Co. to attend to it; and the agent’s allowing them to . take the keys occasionally for cnis purpose was a mere matter of convenience, to facilitate the operations of the workmen. Troplong, Nant., No. 311; Dalloz, Repertoire, vol. xxxii. p. 455, art. Nantissement. See also Duranton, vol. xviii. Nos. 525, 528, 531.
*484 A different result was had in another case, where certain Champagne wines were the object of the pledge, and the debtor had .’reserved the care of them; and, though the vaults in which they were stored' were leased to the creditors, they communicated by open doors with the other vaults of the- debtors, where-their workmen were employed on the wines, and- there was nothing to indicate which were pledged, and which weie not, -and nothing to prevent a substitution thereof; so that the debtors appeared in possession, and kept up their credit thereby, which they could not otherwise have done. Troplong, No. 312; Ricou et al. v. Syndics of Joly & Co., Dalloz, Repertoire, Nantissement, No. 93, note.
In another case,-it was decided that the debtor might be permitted to' make sales of the goods pledged, provided that they remained, in the pledgee’s possession, and could not be delivered to the purchaser -without his consent. Dalloz, No. 129.
Troplong. deduces, from these and other cases, the general conclusion that, whenever the assistance of the debtor is’necessary to the better accomplishment of the object of the pledge, it ought to be permitted, provided always that it does not disturb the possession of the creditor in-any respect. Nant., No. 313. Dalloz says: “ It is evident that if the pledge of movables could, without a delivery, have effect in regard to third persons, it would be the source of great frauds and deceptions. When the debtor, is obliged to surrender possession he cannot deceive third parties dealing with him by keeping possession of’ the pledged articles as part of his estate, and getting credit thereby.” He-takes special notice of the decision that a pledge is not valid if the.dispossession of the debtor is not sufficiently com-plete to prevent substitution; or -if there is a mere contract for a pledge, and not an actual pledge. Dalloz, Rep. Nant. 119. And he lays down the principle, that though á contract for a pledge may be enforced against the .pledgor and his heirs (Nant., No. 121), yet that, by the very words of the Code, he cannot set up the privilege .of the pledge, which alone constitutes his right as against third persons, without actual possession, or its equivalent. Nant. 119, 209.
From these authorities it seems to be evident that, in the French law at least, the text of which, in this regard, is the *485 same as that of Louisiana, a delivery by the owner of securities by way of pledge, followed by a return thereof to him,' for the purpose of enabling him to collect them and apply the money to his own use, on substituting others in their stead, and with general liberty of substitution, and to appear as the owner and possessor thereof in his dealings with others (the title of the securities not being transferred to the creditor), is not such a delivery of. possession as is necessary to establish the privilege due to a pledge as t#lhird persons. It would be 'contrary-to the very letter of the- law to allow such a transaction to have that effect. It would not be mere evidence of fraud, which might be rebutted by counter evidence; but it would be contrary to the rule of law adopted to prevent fraud. In other words, as to third persons, it would not be a pledge at all within the meaning and requirements of the law.
We think that the decisions in Louisiana lead to the same conclusion. In the case of
Geddes
v.
Bennett
(
It must not be overlooked that the Credit Mobilier has no other claim to the securities in question but that of pledge. A pledge,-and possession, which is- its essential ingredient, must be made out, or their privilege fails. An agreement for a pledge raises no privilege. There is no mortgage; for the title of the securities was never transferred to them. The evidence of the. cashier is, that they were all stamped payable to the order of the bank, when discounted. They were not indorsed by the cashier until the day they were removed b.y Cavaroc, which was after the bank had failed.
Two cases, decided by the Supreme Court of Louisiana, have been cited and relied on (as well as some- other cases in England and the United States), to show' that an assignee only takes the- property assigned'exactly in the plight in which the debtor held ,it, and subject to all the equities to which it was subject' in his hand's. The first case is that of
Campbell
v.
Slidell
(
The second case is that of
Partee,
Syndic, v. Corning,
We have examined the other authorities referred to, among which’are
Mitford
v. Mitford, 9 Ves. Jr. 86;
Mitchell
v. Winslow,
Whilst it is generally true that an assignee for the benefit of
*488
creditors holds the property assigned subject to the same equities as the debtor or assignor held it, it is not universally true. Many transactions would be binding ón (he latter which would not be binding on the assignee. All saléis and securities mad< for the actual purpose
of
defrauding creditors are of this class By the law of Louisiana, a pledge, in order to be effective against third persons, must be accompanied by a privilege. It may be valid as a. contract between the parties without this quality, as held both in the French law (as already shown) and in Louisiana, in the case of
Matthews
v. Rutherford,
Indeed, it may -be laid down as a general rule, as well at the common law as the civil law, that a trustee, assignee, or syndic, having the powers and occupying the relations which are sustained by a receiver under the National Banking Act, or an assignee in bankruptcy, may well oppose any privilege or'preference which the'law itself, unaided by a bona fide purchase or judgment, would regard as void against the general creditors in a. direct contest between them and the parties claiming such privilege or preference; even though the debtor himseif, on account of some personal disability arising from his own acts *490 or engagements, could not -resist the claim. That an assignee in bankruptcy has this power cannot well be doubted; and since a national ■ bank cannot be put into bankruptcy, but can only be wound up under the peculiar provisions of the. banking act, the receiver appointed by virtue thereof must have the same power, or the absurd consequence would follow, that the property of a bank disposed of by voluntary conveyances, or pledges not good as to third persons, would be'beyond the reach of creditors.
.Where the legal or equitable property in a security passes, and there is no express law invalidating the transfer, the creditor will be entitled to hold it as well against the assignee or receiver as against the debtor; because the assignee only takes such title as the debtor has at the time of the assignment or insolvency. In that case, however, the question of fraud would be admissible as a question of fact, to invalidate the transaction. But, in the present case, that question does not arise; or, if it might be raised, it is immaterial. The'Credit Mobilier claims a privilege by virtue of a pledge ; and such a privilege, as we have seen, cannot be maintained as to third persons, without possession. Bad faith, it is true, would defeat the pledge though the creditor had possession. But want of possession is equally fatal,- though the parties may have acted in good faith. Both are necessary to constitute a good pledge so as to raise a privilege against third persons. The requirement of possession is an inexorable rule of law, adopted to prevent fraud and deception; for, if the debtor remains in possession, the law presumes that those who deal with him do so on the faith of his being the unqualified owner of the goods.
This consideration meets the objection which is urged against the rule, that it would result in giving to the general creditors the benefit of the advances made to the debtor on the faith of the stipulated pledge, inasmuch as the estate is increased to the extent of these advances. It is true that the estate is so increased; but the debts and liabilities are also increased to the same amount by the demand of the party who makes the advances, — the only effect of the rule being, that the latter comes into concurrence with the other creditors on an equality, and not by way of preference; and if the latter derive any benefit from this result, it must be remembered that, in the view *491 of the law, they might not have given credit to the common debtor had he not remained’, in possession of the goods, and appeared to continue as the absolute owner' thereof. If the pledge should be "sustained, they would have good cause to complain that they had been deceived by the acts of the parties setting up the pledge. So that, on the question of relative merit and demerit, the parties are in. all respects equal. It is on this principle that the law is founded.
These considerations also supply an answer to another suggestion, that equity will ’ consider as done what the parties intended should be done, which it is assumed was, in this case, a transfer of the title of the securities. Equity will not exercise this power when it would injure third persons who have incurred detriment, and acquired consequent rights by the acts that are done. Such detriment has, in the view of the law, been incurred in this case, and such rights have, by the express letter of the law, accrued.
This suggestion may also be answered by the fact that it cannot be trul-y said to have been the intent of the parties to transfer the title. The agreement was only that “ securities of the first -class shall be deposited with the firm of Messrs. Cavaroc & Son.” A transfer of the title would have been inconsistent with that unrestricted control over, the securities which the bank desired to, and did, retain, and which must be considered as having-been assented to by the Credit Mobilier, through the common agent, Cavaroc.
On this ground, therefore, of want of possession in the pledgee, or of a third person agreed upon by the parties, and of actual possession and control in the pledgor, we feel compelled -to hold that the Credit Mobilier had no privilege as to third persons, and that the receiver was entitled to the securities in question.
The decree will, accordingly, be reversed,’ and the cause remanded tp the Circuit Court with directions to enter a decree in favor of the complainant below in conformity to this opinion'; and it'is
So ordered.