Appellant invokes a decision by the court as to whether the transfer of the shares of stock in question constituted a mortgage or a pledge.
The instant bill avers that —
"On or about the 19th day of July, 1904, A. A. Oden was indebted to complainant in a large sum of money, to wit, $2,000, and to secure said indebtedness transferred and assigned unto complainant as collateral security a certificate for five shares of the capital stock of the Bank of Hartselle, which certificate was numbered 7, and was issued to A. A. Oden by the Bank of Hartselle on the 14th day of December, 1903, and was signed by John S. Mitchell, cashier, and J. D. Pullen, president of said bank. At the time of the transfer of said certificate of five shares of stock the said A. A. Oden made the following indoresment thereon, viz.: 'For value received, I hereby sell, transfer and assign to W. B. Vaughn as collateral security five shares of the within-mentioned stock, and do hereby constitute and appoint Dr. W. A. Barclift as my attorney, to transfer the same on the books of the bank. This 19th day of July, 1904. [Signed] A. A. Oden. Witness: Arthur Stephenson.' "
And further:
"Complainant avers that the indebtedness due him from A. A. Oden to secure which the said Oden delivered to him the said stock as collateral security was due and unpaid at the time of the notice of sale and sale of said stock."
A statement of the difference between a mere pledge, a mortgage, and an equitable charge or lien in the nature of a mortgage is not free from difficulty. The general distinction between a pledge and a mortgage is thus defined: *Page 449
"A pledge differs from a chattel mortgage in three essential characteristics: (1) It may be constituted without any contract in writing, merely by delivery of the thing pledged. (2) It is constituted by a delivery of the thing pledged, and is continued only so long as the possession remains with the creditor. (3) It does not generally pass the title to the thing pledged, but gives only a lien to the creditor, while the debtor retains the general property. People v. Remington. 2 N.Y. Supp. 824, 826, 50 Hun, 602; Thurber v. Oliver (U.S.) 26 Fed. 224, 226. See, also, Mitchell v. Roberts (U.S.) 17 Fed. 776, 778; McFarland v. Wheeler (N.Y.) 26 Wend. 475 (citing Cortelyou v. Lansing [N.Y.] 2 Caines' Cas. 202); Wright v. Ross, 36 Cal. 414, 428; Lewis v. Graham (N.Y.) 4 Abb. Prac. 106, 109; Raper v. Harrison, 15 P. 219, 220, 37 Kan. 243. A mortgage differs from a pledge in that it is a conveyance of the title on condition, and may be valid without actual delivery. A mortgage is a pledge, and more; for it is an absolute pledge, to become an absolute interest if not redeemed at a certain time; while a pledge is a deposit of personal effects, not to be taken back except on payment of a certain sum, by express stipulation or the course of trade made to be a lien on them. 'In the case of a mortgage, the legal property passes with a condition of defeasance; in that of a pledge, the general property does not pass, but remains with the pawnor.' Luckett v. Townsend, 3 Tex. 119, 129, 49 Am. Dec. 723 (citing 2 Story Eq. § 1030; 4 Kent. Comm. 138; 2 Ves. Jr. 378; Cortelyou v. Lansing [N.Y.] 2 Caines' Cas. 200, 206); Brown v. Bement (N.Y.) 8 Johns. 96, 97." Words and Phrases, vol. 6, p. 5414.
As early as Sims v. Canfield, 2 Ala. 555, 560, our court declared that —
"A pledge is, when a thing is deposited as a security to be returned to the pledgor when he has redeemed it. In this the title is retained, although the possession is parted with. In a mortgage, the title is conveyed, subject to be divested if the condition of the mortgage is performed. Cortelyou v. Lansing, 2 Caines' Cases in Error, 200; Jones v. Smith, 2 Vesey."
This distinction is made in Jackson, Morris Co. v. Rutherford, 73 Ala. 155, 157, as follows:
"There can be no legal mortgage of chattels, however, without a transfer of the legal title to the mortgagee, such as will become absolute on default. Such a mortgage is something more than a mere lien, or security. It is rather in the nature of a conditional sale, and operates to transfer such a legal title to the mortgagee, that to be divested the condition must be discharged in full. Jones' Chat. Mortg. §§ 1, 9. It differs from a mere pledge, in which the possession is parted with, and the title retained. * * * It is true that no technical words are necessary to constitute a mortgage which would be good at law, any more than in equity. Any words would be sufficient which serve to show a transfer of the mortgaged property as security for a debt. 'Whatever language may be used, if it shows that the parties intended a sale of the chattels as security, the instrument will be construed to be a (legal) mortgage.' Jones' Chat. Mort. §§ 1, 8, 9. This we take to be the decisive test, and nothing less will answer the purpose. * * * In Mervine v. White, 50 Ala. 388, the word 'mortgage' was held to import a conveyance of the legal title; and so in Glover v. McGilvray, 63 Ala. 508. In Ellington v. Charleston,51 Ala. 166, an instrument was held to operate as a legal mortgage which declared that the creditor 'should have a lien' on a horse, the property of the debtor, 'to have and to hold' until the debt was paid. * * * In some of our decisions expressions are used which seem to confound the distinction between legal and equitable mortgages, but there is no case in our reports which really conflicts with the principles declared in this decision. Glover v. McGilvray, 63 Ala. 508; Brown v. Coats, 56 Ala. 439; Stearns v. Gafford, 56 Ala. 544."
In Alabama State Bank v. Barnes, 82 Ala. 607, 2 So. 349, the holding was that, where a banker advances money on the faith of cotton deposited in the borrower's own warehouse, taking as collateral security his warehouse receipt payable to bearer, unindorsed, and it is stipulated in writing that the borrower shall have a lien on the cotton and that it shall be kept in the borrower's warehouse for his benefit, with the right of sale without notice on default (the cotton being set apart in said warehouse, tagged and numbered to correspond with the receipts held by the banker), the facts do not show a perfected pledge, and do not pass the legal title to the banker, yet it was an executory contract of pledge or an equitable mortgage. Wood v. Holly Mfg. Co., 100 Ala. 326, 346,13 So. 948, 46 Am. St. Rep. 56; Bush v. Garner, 73 Ala. 162,166.
A bill in equity for account by an owner of corporate stock deposited as collateral security for a loan was denied in Gilmer v. Morris, 80 Ala. 78, 85 (60 Am. Rep. 85), where the court said:
"The transfer of the stock in controversy is something more than a mere pledge. It partakes of the nature of both a pledge and a mortgage, because the transferee holds both the possession and the title of the thing transferred. The chief difference between a pledge and a mortgage is, that in the former possession is transferred, and in the latter title, usually unaccompanied by possession. No reason is perceived why the two forms of security may not be combined in one as is here done. Casey v. Cavoroc, 96 U.S. 467, 477, 24 L.Ed. 779. In Nabring v. Bank of Mobile, 58 Ala. 204, it was said arguendo that a transfer of stock like that in the present case was rather a pledge than a mortgage, following the view expressed in Wilson v. Little, 2 N.Y. 443, 51 Am. Dec. 307. But the decision of this point was a dictum, inasmuch as it was immaterial and unnecessary; the same result following whether the transfer was construed to be the one or the other." *Page 450
It should be said that Mr. Justice Clopton was not sitting and Mr. Chief Justice Stone stated his concurrence, in which he said of the transaction:
"Whatever class the present transaction may have previously belonged to, when by the transfer on the books the title to the stock became vested in Morris, it acquired the properties of a chattel mortgage; the thing mortgaged being in the possession of the mortgagee."
In Campbell v. Woodstock Iron Co., 83 Ala. 351, 357, 3 So. 369, there was no transfer of the stock on the books of the corporation, but the instrument declared a mortgage contained apt words of conveyance and showed an intention to transfer the mortgaged property as a security for debt. In this case Clopton, J., was not sitting, but the opinion was concurred in by Stone, C. J. The complaint averred a pledge in Sharpe v. Nat. Bank of Birmingham, 87 Ala. 644, 649, 7 So. 106, and was so treated in the opinion.
This question was considered in Birmingham Tr. Sav. Co. v. Louisiana Nat. Bank, 99 Ala. 379, 13 So. 112, 20 L.R.A. 600, in a controversy between a stockholder, the corporation in which he held shares, and a nonresident corporation that had loaned such shareholder moneys on the security of his stock in the former corporation; Chief Justice Stone stating in response to the inquiry "whether the Birmingham Trust Savings Company has a lien on the shares of its capital stock, the subject-matter of controversy, to secure the payment of the debts contracted with it by Boddie, the original holder and owner of the stock," that —
"The certificates were issued to him, and he remains registered as owner and holder on the books of the company. The question is, Will the asserted lien prevail over his prior pledge of the stock to the appellee, to secure the payment of a debt contracted on the faith of the pledge? The common law regards shares of stock in private corporations as personal property, capable of alienation or descent in any of the modes by which that species of property may be transferred. * * * So far as the statute declares the shares personal property, it is simply affirmative of the common law. * * * The requirement that a transfer of them must be made or registered on the books of the corporation does not prohibit a transfer in other modes, or render a transfer otherwise made absolutely invalid. It is invalid only as to the particular parties mentioned in the statute. A transfer not made or registered on the books of the corporation may not pass the legal title. But it is not intended to establish a rule applicable only to this particular species of property, prohibiting the creation therein of equities binding the legal title, or requiring that at all times the legal and equitable title must be united in the same person."
The justice proceeds with the discussion of "the pledge to the appellee," Louisiana National Bank, its precedence in point of time to the creation of the debt for the payment of which the Trust Savings Bank sought to assert a statutory lien on the stock in question, and denying such lien on the ground of "notice of the pledge." The statement of facts recites:
"On the maturity of this note (to Louisiana National Bank) it was renewed by said Boddie, and Hudson, the said cashier of Birmingham Trust Savings Company, wrote the written part of said note and indorsed in his handwriting on the back of said note the pledge of 300 shares of stock as collateral security."
The loan was reduced by a sale of a part of said stock, and Boddie executed a second note to the Louisiana National Bank, "with the pledge of the remaining 250 shares of stock indorsed thereon." It is apparent that by the agreement of the parties thereto the loan by the Louisiana National Bank to Boddie was secured by a pledge rather than by a mortgage, and was so treated by Judge Stone.
It must result from the foregoing that in case of a written transfer of the legal title to personal property as security for debt, under such circumstances as to show that the parties intended a sale thereof, whether with or without a delivery of such property the instrument will be construed as a mortgage, though no method of foreclosure is provided in the instrument evidencing the transfer (Boyett v. Hahn, 197 Ala. 439,73 So. 79; Averyt Drug Co. v. Ely-Robertson-Barlow Drug Co.,194 Ala. 507, 69 So. 931; Lewis v. Davis, 198 Ala. 81,73 So. 419; Ellington v. Charleston, 51 Ala. 166), and that where (1) the possession of the property passes from the pledgor to the pledgee or his agent, (2) the legal title remaining in the pledgor, and (3) the pledgee has a lien on the property for the payment of a debt or performance of an obligation due him by the pledgor or some other person, the same is a pledge (Travelers' Ins. Co. v. Lazenby, 16 Ala. App. 549,80 So. 25; Id., 202 Ala. 207, 80 So. 29; 31 Cyc. 890, 797; Rolfe v. Huntsville Lbr. Co., 8 Ala. App. 487,62 So. 537).
Further applicable rules of construction of written instruments for the conveyance of personal property that may aid in classification in a doubtful case are that where words are employed that are sufficient to show a transfer of chattels as security for a debt, such instrument will be held a mortgage; that is, if it shows "that the parties intended a sale of the chattels as security." This is the decisive test. Jackson, Morris Co. v. Rutherford, supra; Sims v. Canfield, supra. If there is doubt whether the transaction was a mortgage or a conditional sale, it will be held that the former was the intention of the parties. Robinson v. Farrelly, 16 Ala. 472; Locke v. Palmer, 26 Ala. 312; Crews v. Threadgill, *Page 451 35 Ala. 334; M. B. L. Ass'n v. Robertson, 65 Ala. 382; Turner v. Wilkinson, 72 Ala. 361; Irwin v. Coleman, 173 Ala. 175,55 So. 492; Van Heuvel v. Long, 200 Ala. 27, 75 So. 339,341. The reason is that no great injustice can be perpetrated so long as the creditor recovers his debt with legal interest, while much oppression may result by the inability of the debtor to repurchase the property at the time specified. An error of judgment, in other words, which may convert the transaction by construction into a mortgage would not be so oppressive or injurious as a like error which might change a mortgage into a conditional sale. Rapier v. Gulf City Paper Co., 77 Ala. 126.
Such being the general rules of construction of conveyances of real and personal property, the same should obtain where the subject of the written instrument was the corporate stock of a bank. The shares of stock, not the certificate representing them, are personal property and made the subject of levy and sale. Code, §§ 3470-3475; White v. Rankin, 90 Ala. 541,8 So. 118; Berney Nat. Bank v. Pinckard, 87 Ala. 577, 6 So. 364. The stockbook is the evidence of ownership and the right to benefits and liability as such. Walsh v. State ex rel. Cook,199 Ala. 123, 74 So. 45, 2 A.L.R. 551; White v. Rankin, supra; Winter v. Montg. G. L. Co., 89 Ala. 544, 7 So. 773. In the instant transfer apt words of conveyance were used and a power of attorney was given by the mortgagor, Oden, to Dr. Barclift to transfer the stock on the books of the bank. That this was not done while Oden lived was no fault of the mortgagor, but of the mortgagee Vaughn. In this respect is the case differentiated from that of Birmingham Trust Savings Bank v. Louisiana National Bank, supra, and becomes more nearly analogous to Gilmer v. Morris, supra, and is controlled by this and by Campbell v. Woodstock Co., supra, and Jackson v. Rutherford, supra.