Valdosta Plywoods Inc. v. Belote

1. The motion to dismiss is not meritorious.

2. The term "pledge," used in an instrument whereby a sawmill and accessories are conveyed to a creditor to secure a debt, is ambiguous and subject to explanation. The testimony of the creditor to the effect that the intention was to create a mortgage was relevant and material and should not have been excluded. Under the facts, as shown above, and the fact that the property was not delivered to the creditor, the finding that the instrument was a mortgage was demanded, and the court erred in not awarding all of the funds in the sheriff's hands, exclusive of costs, to the creditor under the instrument indicated.

DECIDED SEPTEMBER 6, 1947. The issues in this case arise out of a money rule brought by Economy Oil Company against the Sheriff of Lowndes County touching the distribution of funds derived from the sale of certain property belonging to L. R. DeLoach. The claim of Economy Oil Company was based on an open account for $873.13, principal. A claim for $160 principal and $8.58 costs was made by the executor of the A. J. Strickland Sr., estate, the basis of which was a distress warrant. Valdosta Plywoods Inc. claimed all the funds, to wit, $2400, less costs of court, by virtue of what it contends is a mortgage foreclosure.

The facts with reference to this alleged mortgage foreclosure are as follows: C. M. McLain executed and delivered to Valdosta Plywoods Inc. a bill of sale to the property involved. Valdosta Plywoods Inc. executed the following instrument: "We the undersigned hereby sell, transfer and convey to L. R. DeLoach, all items described on bill of sale executed by C. M. McLain to Valdosta Plywoods Inc., as of this date, copy of which is attached hereto. We the sellers hereby acknowledge receipt of a 6% interest-bearing notice in the amount of $2300, executed by L. R. DeLoach as of this date, in consideration for transfer of title to the items referred to above, subject to compliance with the terms of the above described 1st-mortgage note. All items described by this bill of sale are tendered by the buyer as collateral and security on the note. Additional collateral and security tendered by the buyer on same note is described as follows: One 1942 Mercury Motor No. 99A50-5278. Valdosta Plywoods Inc., Seller, by D. E. Nichols, Pres. Freda M. Schurr, Notary Public, Georgia State at Large, My Commission expires Dec. 29, 1946. Copy of this bill of sale is hereby Signed by purchaser and attached to above-described note, as witness of collateral and security to apply on same. Buyer, L. R. DeLoach. Freda M. Schurr Notary Public, Georgia State at Large, My Commission expires Dec. 29, 1946 (N. P. Seal) Recorded Sept. 24, 1946, Book 110, page 161, Louise Dickinson, Dept. Clerk." On April 24, 1946, L. R. DeLoach executed a promissory note for $2300 to Valdosta Plywoods Inc., and on April 30, 1946, a note for $665. On the back of the $665 note is the following: "Security: First Mortgage on one U 40 Power Unit, Allis-Chalmers No. 35538U with 12x12 pulley. L. R. DeLoach." On May 9, 1946, DeLoach executed a note to Valdosta Plywoods Inc. for $275. On May 30, 1946, DeLoach executed a note to Valdosta Plywoods Inc. for $3815. After the signature of the witness to the note the following appears: "This note supersedes and includes attached notes totaling $3240." (The notes set forth above.) On the back of the $3815 note is the following: "As security for this note the following equipment is pledged: (Description of property sold by the sheriff) L. R. DeLoach."

On the hearing of the money rule before the judge, it was stipulated by counsel as follows: "1. That Valdosta Plywoods Inc. did not surrender and did keep and retain all of the notes given to it by L. R. DeLoach, which notes are mentioned in the pleadings. 2. That D. E. Nichols, President of Valdosta Plywoods Inc. handled the transactions on behalf of Valdosta Plywoods Inc. with L. R. DeLoach. 3. That D. E. Nichols would testify as follows: (a) That the purpose and intent of the entry on the face of the note given by L. R. DeLoach to Valdosta Plywoods Inc., dated May 30, 1946, as follows: "This note supersedes and includes attached notes totaling $3240.00,' was to evidence that the amount of the note included other notes referred to and was not intended to evidence that such other notes had been paid or delivered up. (b) It is further agreed that the said D. E. Nichols would testify that the purport and intention of the entry on the back of the note above referred to as follows, `As security for this note the following equipment is pledged,' was to evidence that the property mentioned was given as security for the payment of the note and that the transaction constituted a mortgage. The said D. E. Nichols would also testify that he does not know the import in legal contemplation of the term `pledged,' and that it was used in connection aforesaid to evidence that the property mentioned was mortgaged a security for the payment of the debt. 4. It is agreed that L. R. DeLoach did not make delivery of the property of Valdosta Plywoods Inc. at or subsequent to the time the said note was given.'

The court in its judgment found that there was no ambiguity in the language of the instrument of May 30, 1946, or in the indorsement thereon; that this instrument superseded (did away with, supplanted, made inefficacious, obliterated, displaced, set aside and made void) all of the prior notes and mortgages; that the language of the indorsement is not ambiguous and that the words constituted a pledge and not a mortgage; that new advances were included in the $3815 note; that the pledge failed because of nondelivery of the property; that the evidence offered on behalf of Valdosta Plywoods Inc. (in the form of a written stipulation between counsel for the interested parties) is excluded and the objection thereto is sustained; that the claims of the other two creditors be paid and the balance be paid to DeLoach.

Valdosta Plywoods Inc. filed its bill of exceptions, reciting the foregoing facts and assigning error as follows: "Whereupon, to the action of the court in excluding the evidence offered in behalf of the plaintiff, to the effect `that the purpose and intent of the entry on the face of the note given by L. R. DeLoach to Valdosta Plywoods Inc., dated May 30, 1946, as follows, "this note supersedes and includes attached notes totaling $3240.00," was to evidence that the amount of the note included other notes referred to and was not intended to evidence that such other notes referred to had been paid or delivered up,' and in holding, under the evidence that Valdosta Plywoods Inc. `holds only an unsecured note for $3815.00,' and in ordering payment of the claim of Economy Oil Company and A. J. Strickland, executor, in preference to that of Valdosta Plywoods Inc., then and there excepted and here and now excepts and assigns said several rulings as error upon the ground that the same were error and are contrary to law, in that said evidence should have been considered and the claims of the plaintiff should have been sustained and ordered paid in preference to the claims of Economy Oil Company and A. J. Strickland, executor." 1. The motion to dismiss the writ of error is on the ground that there is no valid assignment of error. While the assignments may not be as technically accurate as they might have been, the final judgment is excepted to and likewise the exclusion of the evidence offered. The order excluding the evidence shows the grounds of exclusion and the exception under such circumstances is sufficient to apprise this court of the contention made.

2. The court erred in excluding the evidence and in ordering the claims of the other two creditors paid in preference to the claim of the plaintiff in error. "No particular form is necessary to constitute a mortgage. It must clearly indicate the creation of a lien, specify the debt to secure which it is given, and the property upon which it is to take effect." Code, § 67-102;Horton v. Murden, 117 Ga. 72 (43 S.E. 786); Daniel v.State, 63 Ga. App. 12 (10 S.E.2d 80); Findley v. Deal,69 Ga. 359; Hillis v. Comer Co., 14 Ga. App. 30 (79 S.E. 930). While the word "pledge" has a definite, invariable legal meaning when so used, unless it is so used it does not have such invariable meaning. The intention of the parties is the criterion for the construction of a contract, and when the context of a contract shows in itself that the term is not used in a technical sense, the word is ambiguous and subject to explanation. However, in view of the fact that the determination of whether a conveyance is a pledge or not involves not only the construction of the writing, but also the fact of delivery or nondelivery of the property conveyed, it may be that the ambiguity is not required to be within the four walls of the contract in such a case, but we shall apply the strict rule here. The property here given as security was a sawmill outfit, plus accessories, including a 1-1/2 ton truck with log bolster. The court will take judicial notice at least of the fact that the pledge of such property to secure debt is most unusual and rare, in fact practically unheard of. This fact, together with the testimony excluded, to the effect that the intention (not merely the pledgor's or mortgagor's) was to create a mortgage, is sufficient to show, in the absence of other evidence, that the word meant mortgage. One other illustration will suffice to show that an ambiguity may be determined from the nature of the property conveyed. If one stated in a note that he "mortgaged" certain stocks and choses in action, to secure the debt, and delivered the property to the payee, the transaction would be construed to be a pledge, for the reason that choses in action cannot be mortgaged, and so to construe the contract would defeat the obvious intention of the parties. "It has been said that a mortgage is in the nature of a pledge to secure payment of the mortgage debt. Also, in equity a mortgage and a pledge in most respects are subject to the same rules, and the term `mortgage' as used in a statute has been held to include a pledge. In states where a chattel mortgage does not transfer the title to the chattels to the mortgagee but merely gives him a lien, it has been said that the rights of a mortgagee in possession and a pledgee are practically, if not identically, the same." 10 Am. Jur. § 10. p. 723. "There is no general rule for determining whether a particular transaction is a mortgage or a conditional sale and every case must be decided on its own circumstances. The legal aspect of the contract in this respect depends upon the intention of the parties, to be ascertained by a consideration of the entire instrument and the surrounding circumstances, and not upon the form of the instrument or the name which the parties may have given to it." 10 Am. Jur. § 9, p. 722. In Walker v. Staples, 87 Mass. 34, it was held that a bill of sale of personal property absolute in terms, but intended as collateral security, amounts only to a pledge where the property is delivered to the pledgee, which is lost by giving possession of the property to the general owner, even though under restrictions as to the use of it. The same was held in Kimballv. Hildreth, 90 Mass. 167. In Ward v. Sumner, 22 Mass. 58, a conveyance of furniture was held to be a mortgage, though it could have been construed as a pledge, because the property was not delivered to the obligee. "It is true that the use of the word 'pledge' does not, of itself — ex vi termini — settle the character of the transaction; for where it is the clear intent of the parties that the possession of the goods and chattels shall remain in the debtor, until default of payment, it will be regarded as a mortgage, even if the word `pledge' is used." Haskins v. Patterson Ballentine, Edmonds' Selected Cases, 120 (N. Y.). To the same effect see Vanstone v. Goodwin,42 Mo. App. 39, where a conveyance of stocks was held not to be a pledge because there was no delivery and no mortgage because interest in stocks is not so conveyed. See Jones on Pledges and Collateral Security (2d ed.), 15, §§ 11, 12.

In various transactions between the plaintiff in error and DeLoach various terms were used to show the nature of the security given. In one instrument it was stated, "All items described by this bill of sale are tendered by the buyer as collateral and security on the note." The court properly held that those terms created a mortgage, and we can see no distinction between that provision and the one in the last instrument, the one with which we are dealing. To tender collateral and security implies a pledge about as much as the word "pledge" itself. So, under the facts and circumstances of the case we hold that the court erred in excluding the evidence indicated and in finding against the plaintiff in error. These circumstances, to sum up, are, the nature of the property and the consequent ambiguity of the term "pledge;" the non-delivery of the property to the payee of the note; and the stipulated testimony of Nichols as to the meaning of "pledge."

This ruling does not conflict with the general principle that in cases of doubt the transaction must be construed to be a pledge. For this principle to apply, all the elements of a pledge must be present, including delivery of the property, an element which is not present in this case. Failure to record the instrument and prejudice to third parties are not involved in this case. Neither is the prejudice of third parties involved because of the ambiguous term "pledge." The transaction as it was intended between the immediate parties is controlling. Code, §§ 67-109, 67-1305; Mackler v. Lahman, 196 Ga. 535 (27 S.E.2d, 35).

The court erred in not finding that Valdosta Plywoods Inc. had a prior claim and was entitled to the funds in question.

Judgment reversed. Sutton, C. J., and Parker, J., concur.