U.S. Supreme Court
Casey v. Cavaroc, 96 U.S. 467 (1877)
Casey v. Cavaroc
96 U.S. 467
1. Possession is of the essence of a pledge, and without it, no privilege can exist as against third persons.
2. This doctrine is in accordance with both the common and the civil law, the Code Napoleon (art. 2076), and the Civil Code of Louisiana (art. 3162).
3. The thing pledged may be in the temporary possession of the pledgeor as special bailee without defeating the legal possession of the pledges, but where it has never been out of the pledgeor's actual possession, and has always been subject to his disposal by way of collection, sale, substitution, or exchange, no pledge or privilege exists as against third persons.
4. Though in such a case the pledgee, by a real action against the pledgeor or his heirs, may, under the law of Louisiana, recover possession of the thing, he cannot sustain a privilege thereon as against creditors or against a bank receiver, or an assignee in bankruptcy who represents them.
5. Equity will not regard a thing as done which has not been done when it would injure third parties who have sustained detriment and acquired rights by what has been done.
6. Where it was agreed that a bank should deposit bills and notes with its president and his partner by way of pledge to secure a loan made by a third party, and the president delivers them back to the bank officers for collection, with power to substitute other securities therefor, it is not such a delivery and possession as is necessary to create a privilege by the law of Louisiana.
The National New Orleans Banking Association, an organization formed under the National Banking Act of 1864, failed and suspended payment on the 4th of October, 1873, and on the 27th of that month was placed in the hands of a receiver under the fiftieth section of the act. At or about the time of the failure, Charles Cavaroc, the president of the bank, took therefrom certain bills and notes to the amount of $325,011.26 and delivered the same to his firm of C. Cavaroc & Son, who claimed to hold them as agents for the Societe de Credit Mobilier of Paris, by way of pledge to secure said society for certain acceptances of bills drawn by the bank in July previous. The bill in this case was filed by the receiver to recover possession of said securities, alleging that they were delivered by the bank to Cavaroc & Son in contemplation of the insolvency of the bank, not by way of pledge, but with a view to give a preference to Cavaroc & Son and the Credit Mobilier over other creditors of the bank, chanroblesvirtualawlibrary
contrary to the provisions of the fifty-second section of the banking act. The defendants, Cavaroc & Son and the Credit Mobilier, by their several answers, deny that the securities were delivered by way of preference in contemplation of the insolvency of the bank and insist that they were actually pledged to the society by virtue of a distinct agreement, as a consideration and security for the acceptance by if of bills drawn by the bank to the amount of one million francs, which bills were drawn in pursuance of said agreement and were negotiated by the bank for over $218,000, and were duly accepted by the society upon the faith of the pledged securities. The answers aver that at the time of this transaction, the bank was in good credit and standing.
The parties having gone into proofs, the following facts were shown:
From May, 1873, until the time of its failure, the bank was in a weak financial condition and constantly becoming weaker. The cashier testified that on the 31st of May, it had hardly any funds to meet current checks, whilst the amount due to depositors was $680,775. A deposit of $25,000 was opportunely made by a customer on that day, but the president, Cavaroc, was so apprehensive of immediate suspension that he refused to let it be used, telling the paying teller that if anything should happen, he did not want the depositor to lose this money. By getting temporary relief from the other banks of the city and from the New Orleans Insurance Association and other large loans, it kept its doors open until the 4th of October, though, in connection with most of the other banks of New Orleans, it ceased, from and after the 24th of September, to pay cash, except for very small amounts, paying only in clearing-house certificates, which it obtained by depositing collaterals with the trustees of the clearing-house. Although it held notes and bills receivable amounting to about a million of dollars, a large portion of these were comparatively worthless, being either protested or renewed at maturity, and the makers constantly failing, and all of them of any value being pledged or agreed to be pledged for its various loans. Although this condition of the bank was not generally known, and presumably unknown to the Credit Mobilier, yet suspicion chanroblesvirtualawlibrary
of its solvency began to be entertained by many of the businessmen of New Orleans as early as June or July, and its stock became almost totally unsalable in the market.
In the early part of July, 1873, Charles Cavaroc, Jr., a member of the New Orleans firm of C. Cavaroc & Son, being in Paris on behalf of the New Orleans National Banking Association, entered into negotiation with the Credit Mobilier for procuring the acceptance of the latter for the accommodation of the bank, and on the 11th and 12th of July the said negotiation was concluded in the form of a letter addressed by Cavaroc to the society, and of an answer thereto by the latter. The following are the material parts of this correspondence. Cavaroc, in his letter dated July 11, 1873, says:
"The verbal agreements entered into between us relative to this operation can, we think, be thus resumed:"
"In order to benefit by the difference in the rates of exchange between the summer months and end of the year time when the large shipments commence, the Society of the Credit Mobilier authorizes the New Orleans National Banking Association to draw upon it, and binds itself to accept these drafts at ninety days, up to 1,000,000 francs."
"The drafts made under these conditions shall be renewable under the same conditions, but it is expressly specified that, ten days before maturity, the Society of the Credit Mobilier shall be covered by Mr. Cavaroc, president, to the amount of the payments to be made."
"The funds realized from these emissions shall be used by the bank against guaranties and securities of the first class, which shall be deposited by the bank with the firm of Messrs. Cavaroc & Son, which shall be the depository thereof, and advise the Credit Mobilier of such deposit."
"The bank shall guarantee the investment of these sums, and the interest shall be carried to the credit of the joint account at the rate of seven percent per annum."
"This account shall in no manner allow any commission or privileged charge on either side -- there shall figure only brokerage, stamps, and diverse charges really and honestly incurred by either side."
"The accounts shall be stated at the closing of each operation."
"Profit and loss shall be equally divided between the Credit Mobilier and the New Orleans National Banking Association. "
The answer of the society, dated on the 12th of July, 1873, repeats this contract and accepts its terms.
During the negotiation, on the 11th of July, Cavaroc and the Credit Mobilier, respectively,