James Bradford Co. v. United Leather Co., 11 Del. Ch. 110

11 Del. Ch. 110 | New York Court of Chancery | 1916

The Chancellor.

The question is as to the ownership of the twelve boxes of leather, or rather of the proceeds of the sale thereof. It is claimed by the Security Trust and Safe Deposit Company that the assignment of the invoices for the leather consigned to the two factors transferred to it the title to the leather itself. For the receivers it is urged, however, that an invoice is not an evidence of title, such as is a bill of lading or warehouse receipt, for the former is but a list of goods shipped with the value, price, description and the like, while the latter are receipts of a third person showing possession of the goods. Therefore, it is said, there is no symbolical delivery of the property by an assignment of an invoice, but at most a transfer of the right to receive the proceeds of the sale of the things stated in the invoice. If the consignment had been to a purchaser and not to a factor, the contention would be sound. Was it not the intention of the borrower and lender that the borrower’s leather, or the proceeds of sale thereof by its factors, should be the security for the loan ? The title to the leather was always in the borrower. When, then, it came back to the possession of the borrower it was in its hands still impressed with the same agreement, viz: That when sold the proceeds should be applied to the indebtedness of the United Leather Company to the Security Trust and Safe Deposit Company. As against the United Leather Company the Security Trust and Safe Deposit Company certainly had an equitable lien, or claim, to the proceeds of sale of the leather. The transaction probably did not amount to a pledge, which required delivery to the pledgee, though the marking of the boxes of leather as the property of the Security Trust and Safe Deposit Company may have constituted a sufficient delivery and a definite negation of the ostensible ownership in the United Leather Company as would make it a valid pledge under the principles so ably discussed by Judge Bradford in the case of Philadelphia Warehouse Co. v. Winchester, et al., (C. C.) 156 Fed. 600. But though there be not a pledge, still by agreement on sufficient consideration, and without delivery, a lien on property may be created which will be enforceable in equity as between the parties to the agreement and against volunteers, or purchasers or encumbrancers with notice. 3 Pomeroy’s Equity Jurisprudence, par. 1235; 2 Story’s Equity Jurisprudence, §1231; 25 Cyc. 665; Ketchum v. St. Louis, 101 U. S. 306; Walker v. Brown, 165 U. S. 654, 666.

In this last case the court said:

“To dedicate property to a particular purpose, to provide that a specified creditor and that creditor alone shall be authorized to seek payment of his debt from the property or its value, is unmistakably to create an equitable lien.”

The form of the agreement is immaterial, “if the intent-appears' to make any identified property a security for the fulfillment of an obligation.” 3 Pomeroy’s Equity Jurisprudence, §1237.

Here there was an agreement in consideration of a loan of money that the creditor, and it alone, should be authorized to seek payment of the debt from the leather, or its value, and so there was an equitable lien enforceable against the company itself, or its receivers and its creditors, who are volunteers. If an invoice of goods shipped to an agent or factor of the shipper for sale on commission be assigned as collateral security for a loan, then theré is an equitable lien created in favor of the lender, which entitled him to the proceeds of sale of the goods when sold.

There being, then, an equitable right, this court in this cause will enforce it, for the receivers cannot assert in behalf of the general creditors a claim to the proceeds of the sale of property which the insolvent corporation could not have asserted in a contest exclusively between it and the creditor. This has been well established as to assignees or trustees in bankruptcy, and the following cases were cited on the point: Hauselt v. Harrison, 105 U. S. 401, 406; Yeatman v. Savings Institution, 95 U. S. 764; First National Bank v. Pennsylvania Trust Co., 124 Fed. 968, 60 C. C. A. 100. A receiver appointed by a court of chancery to wind up the affairs of an insolvent company is like a receiver in bankruptcy, in that it takes the property of the company as a purchaser from the company with notice of all outstanding rights and equities. Inasmuch, then, as the receivers could acquire mo greater right than the United Leather Company had to the proceeds of the leather whenever and however sold, it seems to be a simple proposition that the lender should be paid from the proceeds of the security given for his debt now that it has been converted into money.

It is not necessary to consider the rights of a creditor of the United Leather Company having a legal lien on the leather as against the holder of the equitable lien, for there is no such legal lien. But it has been held that a specific equitable lien has preference over a subsequent legal lien. 25 Cyc. 679; Dwight v. Newell, 3 N. Y. 185.

There is in this cause no fraud on the rights of creditors of the United Leather Company, for it was a bona fide transaction throughout, the Security Trust and Safe Deposit Company lending money on certain property as collateral security, and the arrangement was a step in securing to the lender repayment by giving it a preference of payment from the things constituting the security. No other creditor of the borrower has any right to object, nor has he been deprived of any right or been put in a worse position because of the transaction between the United Leather Company and the Security Trust and Safe Deposit Company than he would have been if they had not made the agreement.

In my opinion, then, the Security Trust and Safe Deposit Company haying loaned to the United Leather Company money on the faith of the proceeds of sale of the leather consigned by the United Leather Company to its own factors, is entitled to the proceeds of sale thereof as against the receivers of the borrowing company, who represent the company and its creditors and stockholders.

Let an order be entered accordingly.