Pledge. Mortgage, Of personal property. Trust, Creation. Where a bank advanced to an importer of hides the money necessary to pay for a certain shipment of hides and, before advancing the money, received from the importer his promissory note for the sum to be advanced and an instrument in writing called a "trust receipt," which gave a detailed description of the hides then imported and declared that the importer held them in trust for the bank, retaining liberty to manufacture or sell them on account of the bank, and that the bank at any time might take possession of them or of the product manufactured from them or of the proceeds of such of them as should have been sold, it was held, that this instrument did not operate as a pledge of the hides, because they never were delivered to the bank, nor did it constitute a mortgage of the hides as against creditors of the importer, because it was not recorded, and that the instrument created no trust in products manufactured from the hides and money received from the sale of a part of them which had been mingled with other products and other money so that they were not susceptible of separation and identification.
PIERCE, J.
Before the summer of 1911 the defendant Mulholland and one Cornelius J. Coughlin were copartners under the name and style of E.F. Mulholland and Company, and were engaged in the business of importing hides which they either sold in the raw state or had them tanned into leather and then sold. In the summer of 1911 the copartnership was dissolved, and thereafter Coughlin continued the business until his death on September 24, 1911. The defendant Ellen T. Coughlin was appointed the administratrix of his estate, which has been represented insolvent.
On March 22, 1910, the firm received from one S.G. Kaufman of Germany a bill of lading with a draft for the delivery upon payment of ninety-two bales of hides. Coughlin, on behalf of the firm, arranged with the plaintiff to furnish the money to pay the draft. Before the payment was made, Coughlin executed and delivered to the plaintiff the collateral promissory note of the firm for the amount of the draft. With the delivery of the note he also delivered a trust receipt of the firm, in the form set out in the bill.
At the time of Coughlin's death, the skins described in the trust receipt had either been sold or tanned into leather. The skins that remained unsold and the money received from those sold were so mixed with other skins and money of the firm as to render them not susceptible of separation and identification. The question is whether this fund (money and leather) should be awarded to the bank upon its claim under the trust receipt.
There are no facts found by the master to warrant a finding or inference of fact that the plaintiff purchased the hides of Kaufman on behalf of the firm, that it took title to itself as security for its advancement or that it received the bill of lading and draft as agent for the seller. The case at bar is, therefore, not within or governed by Stollenwerck v. Thacher, 115 Mass. 224, Fifth National Bank of Chicago v. Bayley, 115 Mass. 228, Newcomb v. Boston Lowell Railroad, 115 Mass. 230, Moors v. Wyman, 146 Mass. 60, Moors v. Bird, 190 Mass. 400, Roland M. Baker Co. v. Brown, 214 Mass. 196.
With the payment of the draft the legal title to the hides passed from the seller to the firm. The trust receipt, before the passing of the title to the firm, was inoperative to vest any legal title in the plaintiff, or after the passing of title to the firm to deprive it of title. It could not operate as a pledge, because the plaintiff never had possession of the hides and because the firm had and retained possession to manage and use them as collateral security for its debt to the plaintiff. Walker v. Staples, 5 Allen, 34. Thompson v. Dolliver, 132 Mass. 103. Copeland v. Barnes, 147 Mass. 388. Harding v. Eldridge, 186 Mass. 39. Gamson v. Pritchard, 210 Mass. 296.
If the trust receipt was valid as a mortgage as between the plaintiff and the firm, it was nevertheless invalid as against the creditors of Coughlin's insolvent estate because it was not recorded, and because by the express terms of the statute "Unless the property mortgaged has been delivered to and retained by the mortgagee, the mortgage shall not be valid against a person other than the parties thereto." R.L.c. 198, § 1. Goodrich v. Dore, 194 Mass. 493. See Harrison v. J.J. Warren Co. 183 Mass. 123; Wall v. Provident Institution for Savings, 6 Allen, 320; Parker v. Flagg, 127 Mass. 28.
It follows that the decree must be reversed in so far as it establishes a trust upon the money and leather in the possession of the administratrix, and must be modified by striking out so much thereof as provides for the allowance to the defendant Mulholland of a credit arising from the payment to the plaintiff of the money and leather charged with a trust in the decree.
Decree accordingly.