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The Law of Loans and Discounts and of Negotiable Instruments

pledge, debt, pledgee, lien, property, parties, pledgor and security

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THE LAW OF LOANS AND DISCOUNTS AND OF NEGOTIABLE INSTRUMENTS Distinction Between Pledge, Mortgage, and Lien Loans may be classified into "secured" and "unsecured," and those secured by pledge of personal property are called "col lateral" loans. The legal phases of pawn, pledge, hypotheca tion, or collateral security are comprised in the law of bailments. A bailment is the delivery of goods or money by one person to another, who does not become the owner, but holds such goods or money in trust, for some special purpose, upon a contract, ex press or implied, that the trust will be faithfully executed. A pledge is a bailment to secure the performance of an obligation, with power of sale in case of default. In this form the bailment is merely incidental to the primary contract, the performance of which is secured by the pledge; the pledge is primarily a contract, secondarily a bailment, and it usually applies to the payment of a debt.

Pledges are closely allied to chattel mortgages and liens. In the law a pledge differs from a chattel mortgage in that "the pledgee secures only a special property accompanied by posses sion; the mortgagee acquires at once the legal title with, or more often without, possession, subject to be defeated upon perform ance of the condition. The title of the mortgagee becomes absolute, but upon breach of the condition; the title of the pledgee never becomes absolute, but upon default he acquires a power of sale."' A chattel mortgage must ordinarily be recorded to be valid as against third parties; a pledge need not, because posses sion passes. A lien and a pledge are alike in that they give the lien-holder and pledgee respectively a special property and pos session, but differ in that the lien-holder has no power of sale; he has himself the right to retain the thing, but this right is personal only to him and may not be transferred. All three are commonly used as security for debt, and in equity are subject to redemption upon payment of the debt.

The distinctions between pledge, mortgage, and lien are some times very nice; if ascertainable, the intention and understanding of the parties govern. Where personal property is given as security for a debt, accompanied by a change of possession, either actual or constructive, the transaction is commonly regarded as a pledge; and where it appears that the parties intended no more than giving a security, without a sale or change of property, the law assumes that it was intended as a pledge, and not as a mortgage.

Relation of Pledgor and Pledgee The relation of pledgor and pledgee can arise only by mutual agreement of the parties, either express or implied from their ac tions. There must be a voluntary contract between competent parties. The nature of the debt which the pledged item secures is determined by the terms of the contract; the debt may be a debt of the pledgor or of some other party, and the pledge may be equally obligatory in each case if all proper parties have as sented. The debt may be a future debt or a past debt; the secur ity may cover one or many debts; it may be a conditional or abso lute pledge, and may run for a limited time or for an indefinite time; and it may be a continuing security applying to any future contracts between the parties within the terms of the agreement. Unless otherwise stipulated the pledge is security for the whole and for every part of the debt; if part is paid or discharged there remains a perfect pledge for the rest of the debt; no part of the pledge can be reclaimed by the pledgee until the entire engagement is performed.

The pledgor need not be absolute owner of the thing pledged. If the pledgor has only a limited interest, the pledgee acquires no right to sell the whole property in the thing pledged, on default, lest he divest the ultimate owner of his rights; the pledgee can, however, sell whatever interest the pledgor had, but the buyer in such case only gets the right to hold the pledged item for so long a time and in the same way as the pledgor could have held it. A lien-holder cannot make a valid pledge of property covered by his lien; in such an attempt the courts would not sustain the pledgee against the owner, even for the amount of the lien; cer tain state statutes, however, clothe the lien-holder with the right to pledge property in his possession to the extent of his lien. At common law a factor or broker, although he has a lien on his principal's goods for advances made, cannot pledge them; he cannot pledge goods consigned to him, and the attempt to do so would not divest his owner of any rights nor vest any in the pledgee. A factor may, however, deliver possession of goods on which he has a lien to a third person, with notice of the lien and with the understanding that the delivery is made to such third person as agent of the factor and for the factor's benefit.

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