135 U.S.

478
10 S.Ct. 716
34 L.Ed. 206

FREIBURG et al.
v.
DREYFUS et al.1
April 14, 1890.

D. C. Labatt, for appellants.

This is an appeal from a decree of the circuit court for the eastern district of
Louisiana. 26 Fed. Rep. 824. The facts are these: On October 30, 1883,
appellants, creditors of Joseph Dreyfus, commenced an action at law against
their debtor, to recover the sum of $19,000, and sequestered certain goods in
the warehouse of Meyer, Weill & Co. These goods had been transferred by
Dreyfus to Lehman Meyer, on October 27th, as a 'dation en paiement.' On
November 6th, Abraham Ermann, one of the appellees, filed in said suit what is
known under the Louisana Code of Practice as a petition of intervention and
third opposition, wherein he claimed that on October 29th he had loaned to said
Lehman Meyer $15,000, evidenced by three notes of Meyer's, each for $5,000,
and had received in security therefor a pledge of the sequestered goods. The
appellants answered this petition, alleging, in substance, that no pledge existed;
that if it did exist it was fraudulent, and of no force against the creditors of
Dreyfus; that Meyer's title and possession were fraudulent, and intended to
shield the property from the claims of creditors of Dreyfus; and that, therefore,
this transfer of the property in pledge to appellee conferred no privilege or lien
under the Louisiana law. When this action came on for trial, the circuit court
ruled that at law the only inquiry could be as to the reality of the pledge, and
not as to its fraudulent character. Thereafter a bill in equity was filed by
appellants against Dreyfus, Meyer, and Ermann, alleging the fraudulent nature
of the pledge. Upon final hearing a decree was entered in favor of the
defendants.

Passing all mere matters of practice, we address ourselves to the two substantial
questions: First, whether there was a real pledge, and not a simulated
transaction; and, second, whether, if sufficient in form and real, it was in fact
fraudulent and void. At the time of these transactions Dreyfus was insolvent,
and under the circumstances, which it is unnecessary to state in detail, the
transfer of the property from him to Meyer, though good between the parties
and vesting title in Meyer, was subject to be set aside at the instance of Dreyfus'
creditors. Until so set aside, the title being in Meyer, he could create a valid
pledge in favor of a bona fide party. Meyer held warehouse receipts from
Meyer, Weill & Co., with whom the goods had been stored, and the loan from
Ermann and the pledge to him were evidenced by three notes, of $5,000 each,
alike excepting time of payment, of one of which the following is a copy:
'$5,000.00. New Orleans, Oct. 29th, 1883. Forty days after date I promise to
pay to the order of A. Ermann, Esqr., five thousand dollars, for value received,
with interest at the rate of eight per cent. per annum from maturity until paid.
Payable at the People's Bank of New Orleans. This note is secured by a pledge
of the securities mentioned on the reverse hereof, and in case of its nonpayment the holder is hereby authorized to sell the said securities a public or
private sale, without recourse to legal proceedings, and to make any transfers
that may be required, applying proceeds of sale towards paymento f this note.
Margins to be kept good. L. MEYER.' Indorsement: 'Five warehouse receipts,
dated Oct. 28th, 1883, numbered 1, 2, 3, 4, & 5, issued by Meyer, Weill & Co.
to L. Meyer, and by him indorsed to A. Ermann, payee. L. MEYER.' With the
notes were transferred the warehouse receipts mentioned in the indorsement.
These receipts were alike in form, though covering different properties, and the
following is a copy of one:

'Received from L. Meyer, in apparent good order, on storage in our warehouse

'5/4 pipes B., D. & Co. cognac.

'9 barrels Shmith Blair.

'2/8 pipes Cr. Gavi cognac.

'2/8 pipes Boston cognac.

'3/8 pipes kirsch wasser.

'MEYER, WEILL & Co.'

10

Indorsed: 'L. MEYER.'

11

That these instruments were sufficient in form, under the laws of the state of
Louisiana, where this pledge was created, and that the transaction was real, and
not simulated, is clear. By title 20 of the Revised Civil Code, which treats of
pledges, the right to pledge or pawn is given. Voorhies' Rev. Civil Code La.
553, and following. Articles 3157 and 3158 read as follows: 'Art. 3157. The
pawn invests the creditor with the right of causing his debt to be satisfied by
privilege, and in preference to the other creditors of his debtor, out of the
product of the movable, corporeal or incorporeal, which has been thus
burdened. Art. 3158. But this privilege shall take place against third persons,
only in case the pawn is proved by an act made either in a public form or under
private signature: provided, such act has been recorded in the manner required
by law: provided, also, that whatever may be in the form of the act, it mentions
the amount of the debt, as well as the species and nature of the thing given in
pledge, or has a statement annexed thereto of its number, weight, and measure.
When a debtor wishes to pawn promissory notes, bills of exchange, stocks,
obligations, or claims upon other persons, he shall deliver to the creditors the
notes, bills of exchange, certificates of stock, or other evidence of the claims or
rights so pawned; and such pawn so made, without further formalities, shall be
valid as well against third persons as against the pledgeors thereof, if made in
good faith. All pledges of movable property may be made by private writing,
accompanied by actual delivery; and the delivery of property or deposit in a
warehouse shall pass by the private assignment of the warehouse receipt, so as
to authorize the owner to pledge such property; and such pledge so made,
without further formalities, shall be valid as well against third persons as
against the pledgeors thereof, if made in good faith.'

12

The notes disclosed the amount of the debt, as well as the fact of the pledge,
and the property which was pledged; and the delivery of the warehouse
receipts, as stated in the last clause of article 3158, was a delivery of the
property; so that the pledgee had possession of the property as security for an
indebtedness whose amount, time, and payment were stated in writing. In Cater
v. Merrell, 14 La. Ann. 375, the court said that 'the word 'pledge' is used in the
statutes of 1852 and 1855 in the sense of the definition of article 3100 of the
Revised Civil Code, which defines the contract of pledge, and as the second
section of these acts require the contract of be in writing, the private act
between parties must contain what is declared to be essential by this article to
constitute a pledge; that is, a declaration of the thing given in pledge, and of the
particular debt for which the thing is pledged.' And in Martin v. Creditors, 15

La. Ann. 165, the court observed: 'The assignment of a warehouse receipt, in
the absence of a stipulation that the property is given in pledge to secure the
payment of a principal obligation, the amount of which is specified, does not
cof er a privilege upon the transferce. Cater v. Merrell, 14 La. Ann. 375.
Privileges are of strict right, and parties claiming them must conform to the
requirements of the law. It is required, in order to create a pledge, not only that
delivery should accompany the private deed, but that the instrument itself
should exhibit the nature and extent of the rights and obligations of the
contracting parties reciprocally.' The transaction at bar comes within the
requirements of these authorities. The transfer of the warehouse receipts was a
delivery of the property, and the full terms of the contract of the pledge were
stated on the fact of the notes. And as Ermann gave to the pledgeor $5,000 in
cash, as well as his two notes for $5,000 each, there is no room to doubt that the
transaction was a real and not a simulated one, as well as that the pledge was
made in conformity to the laws of the state of Louisiana. The first question,
therefore, must be answered in favor of the appellees.
13

A like answer must also be given to the second. That Ermann gave the $5,000
and executed his two notes, and thereafter paid those notes, so that heis out the
$15,000 of the loan, is not disputed. That he had no other security, and must
rely for repayment solely on the pledge, is clear. That he was a man of means,
and able to make such a loan, though before he had never made a single loan of
that magnitude; that he had theretofore accommodated Meyer with loans; that
his relations with Meyer were such as to justify him in loaning upon what
seemed to be sufficient security; that he had no knowledge of whence the goods
in question were obtained; that the attendant circumstances were not such as to
arouse suspicion in the mind of a reasonably prudent man; and that the loan and
pledge have all the appearance of an ordinary business transaction,are
conclusions which the testimony satisfactority establishes. It is objected that
after notice by the action at law and sequestration he paid the notes which he
had given to Meyer; in other words, that he unnecessarily paid a portion of this
loan, after notice of the fraudulent character of the transactions by which Meyer
acquired title, and after, by suit, his own rights under the pledge had been
challenged. But the only attack by this litigation up to the time of payment, was
upon the reality of the pledge, and of that there was no question. While
doubtless the failure of Dreyfus, the suits commenced against him, and the facts
concerning Meyer's and Dreyfus' condition, as developed in litigation and
otherwise, disclosed that the property which he had in pledge had come to him
through a devious channel, yet, until some assertion of personal wrong was
made against him, he was under no obligations to let his own paper go to
protest, and thereby tacitly, at least, admit that his own conduct and good faith
were objects of suspicion and inquiry. We think that the conclusion of the

circuit court on the question of bona fides was correct, and the decree is
affirmed.

Affirming 26 Fed. Rep. 824.