Donohoe v. Gamble

Crockett, J., delivered the opinion of the Court: The facts of the case are, that the plaintiffs loaned to the defendant $5,000 in gold coin, and took his promissory note therefor. At the same time, and as collateral security, the defendant endorsed, transferred and delivered to the plaintiffs a promissory note of one Ferguson for $12,000, payable to the defendant' on his order or demand. It further appears that a large proportion of the debt from the defendant to the plaintiffs remains due and unpaid ; that Ferguson resides in the State of New York, and the plaintiffs caused the note for $12,000 to be presented to him for payment, which was refused, and the note was thereupon protested for non-payment.

[350]The complaint in this action states, substantially, the foregoing facts, and prays for a foreclosure and sale of Ferguson’s note in satisfaction of the debt due from the defendant, and for a personal judgment against the defendant for the deficiency. The answer does not deny the foregoing facts, but sets up as a defense to the action, that it is the duty of the plaintiffs to collect Ferguson’s note by process of law, and apply the proceeds to the satisfaction of their demand; and that the Court has no authority to decree a foreclosure and sale. On the trial, the District Court decided the transaction to be a pledge, and not a mortgage of Ferguson’s note; and held, as a conclusion of law, that the plaintiffs, as pledgees, have no authority to sell the note, or cause it to be sold, in satisfaction of their demand, and cannot maintain an action for the foreclosure and sale thereof.

The Court also refused to enter a personal judgment against the defendant for the amount due, and dismissed the complaint with costs; and thereupon the plaintiffs have appealed.

If the transaction be held to be a chattel mortgage and not a pledge, it is conceded by counsel that it might be foreclosed, as any other mortgage. Treating it as a mortgage, no reason has been suggested why it might not be foreclosed. Nor do we understand counsel as controverting the proposition that a pledgee of personal property may, if he elects so to do, cause the pledge to be sold, under a decree of a Court of Equity, in satisfaction of the debt. But it is insisted that a pledge of commercial paper, such as notes, bonds and bills, stands upon a different footing, on account of their peculiar nature; that in the absence of a contract to that effect, authorizing a sale of them, the pledgee has no power to sell them or cause them to be sold by a decree of a Court or otherwise, and can only make them available by collecting them in due course of law.