Union Trust Co. v. Bulkeley, No. 1,564

No. 1,564 | 6th Cir. | Jan 18, 1907

SEVERENS, Circuit Judge.

Richard H. Macauley, who had been engaged in millinery business in Detroit since January 15, 1901, was in November, 1904, on his own petition, adjudged a bankrupt. The Union Trust Company was appointed receiver, and on December 21, 1904, was elected trustee. There came into its hands as trustee book accounts and bills receivable of the bankrupt of an appraised value of $11,000. On May 24, 1905, the appellee, Bulkeley, a resident of Hartford, Conn., and a brother-in-law of the bankrupt, filed a petition in the bankruptcy court, alleging that these accounts and bills receivable were pledged to him by the bankrupt on January 23, 1903, by a verbal assignment, as security for his indorsements of the paper of the bank-nipt to be negotiated for the purpose of raising money to carry on the bankrupt’s business; and that the petitioner had, in reliance on said pledge, indorsed the bankrupt’s paper, and that there was then remaining due thereon upwards of $15,000. It was stated in the petition that it Was understood, when the assignment was made, that the petitioner would not take possession of the accounts and bills until and unless be should deem it for his interest to do so, but that all the accounts and bills should be and remain pledged so long as the petitioner should remain liable on any of the indorsements. The prayer was that the court should adjudge the petitioner to be the owner.of the accounts and bills, and should direct the trustee to turn them over to him. An answer was filed by the trustee which did not admit the assignment, but put the petitioner to his proofs. Upon the hearing before the referee, the petitioner and the bankrupt both testified, and other testimony was given concerning the matters alleged in the petition. The decision of the referee was adverse to the claim made by the petitioner. On a petition for review, the referee reported the evidence and his conclusions thereon, and touching the matter of the alleged assignment, said:

“There is no delivery of possession, and, without reflecting in the least upon the testimony of the parties as given, one can readily see that the door would be open to fraud of the worst character if, upon the simple statement of two parties in interest, a transaction of this kind could be proved. * * * In my mind it would be a most dangerous proceeding to permit parties, after the bankruptcy had occurred, to go in and prove an assignment upon a general conversation, such as the one in question.”

The District Judge reached a different conclusion from that of the referee upon the question of fact as to whether the assignment had in truth been made as alleged, and, adverting' to the above-quoted paragraph of the referee’s opinion, pointed out that the referee was satisfied of the veracity of the petitioner and of the bankrupt as witnesses, but nevertheless had held that the law required more reliable testimony than that of such persons in a case so circumstanced. And there would seem to be some justice in the criticism. If there could be no reflection upon the testimony of these witnesses, it could, not fairly have been denied that it proved the assignment to have been made substantially as alleged. Both parties to the transaction swore to it unequivocally, and it is well-nigh impossible to say that the witnesses testified honestly and yet deny what their testimony proved. It' was not a matter dbout which there could easily have been a mistake. The rule upon which the referee seems to have proceeded was too exacting. That evidence is sufficient in law which is directly to the point, is credible, and is un-contradicted. There was nothing in the circumstances which rendered their testimony so impossible or grossly improbable as to justify disbelief in the testimony of an honest man that the fact was as stated. These observations are made to show that the case comes here with a practical concurrence of tire referee and the judge in regard to the, facts. The circumstance that the referee committed a technical error in point of law is not material. And, adverting to the testimony, we cannot say that the conclusion reached by the court below was clearly wrong. It is subject to some criticism, such as that the parties were related by marriage, that the assignor did not report the transaction to the commercial agencies, and that the accounts and bills were left so long in the hands of the assignor. But these circumstances were explainable and not necessarily inconsistent with good faith. There are also some discrepancies in regard to incidental matters about which .the memory might be at fault. But there is no serious discrepancy in regard to the essential facts.

It appears that on the 16th of November, 1904, seven days before the bankrupt filed his petition in bankruptcy, he executed an assignment of all his book accounts and bills receivable to his wife and Bulkeley, the appellee here, to secure them’ against loss from indorse-ments for him, and recited in it that it was made in pursuance of an agreement made before the making of such indorsements. But the making of this last assignment was without the knowledge or procurement of Bulkeley, and he did not learn of it until about the time the bankrupt filed his petition. As he claims nothing from it, it does not stand in the way of the claim he makes in his petition under the earlier assignment to himself. It is contended by the appellant that the contract of assignment was a contract to assign, and so was an unperformed agreement when the bankruptcy proceedings were taken, which was converted into a claim for damages for breach of contract merely by the operation of the bankrupt act. But there is no ground for this contention. If any contract was made, it was one which became of its own force operative as a lien. It is true that the subject to be affected by it was to be thereafter acquired; but, when acquired, it would become subject to the lien without any new or further agreement. This is something quite different from an executory contract.

Finally, it is contended that the assignment was a Connecticut contract, and that by the law of that state a pledge or mortgage of after-acquired property does not attach until the mortgagee takes possession thereof. But we think the law of Michigan was the law which governed the transaction. It is true the contract was made in Connecticut, hut it concerned a subject-matter located in Michigan, namely, book accounts and bills receivable — the products of a business to be carried on at Detroit. The indorsed paper would probably be used there, and the possession of the accounts and bills remained with the assignor at that place, where also the possession to be taken by the assignee in the contingency stated would be likely to occur. We think the parties intended their contract should be carried out in Michigan, where the bankrupt and his business were located. We do not, therefore, stop to inquire what effect the law prevailing in Connecticut would have upon the transaction if it were applicable.

There is no reason to doubt, and we do not understand that counsel for the appellant doubts, that in Michigan such a pledge or mortgage of after-acquired property if free from fraud is valid. The subject is not regulated by any statute in that state. The rights accruing from such a transaction depend upon equitable principles which are part of the general law. It is well settled that an assignment of choses in action by parol for the purposes of security is valid. In re Burnstine (D. C.) 131 F. 828" court="E.D. Mich." date_filed="1903-07-21" href="https://app.midpage.ai/document/in-re-burnstine-8755116?utm_source=webapp" opinion_id="8755116">131 Fed. 828; Draper v. Fletcher, 26 Mich. 154" court="Mich." date_filed="1872-11-07" href="https://app.midpage.ai/document/draper-v-fletcher-6635864?utm_source=webapp" opinion_id="6635864">26 Mich. 154. And we have held that a chattel mortgage of after-acquired property is good as between the parties. Fisher, Trustee, v. Zollinger (November 3, 1906) 149 F. 54" court="6th Cir." date_filed="1906-11-22" href="https://app.midpage.ai/document/fisher-v-zollinger-8762235?utm_source=webapp" opinion_id="8762235">149 Fed. 54. The same doctrine has been applied to assignments of book accounts to be thereafter earned by the assignor. Tailby v. Official Receiver, L. R. 13 App. Cas. 523. And it is difficult to find any distinction in principle between a mortgage and any other appropriation of after-acquired property to the satisfaction of one’s debts. McDonald v. Daskam, 116 F. 276" court="7th Cir." date_filed="1902-05-07" href="https://app.midpage.ai/document/mcdonald-v-daskam-8747807?utm_source=webapp" opinion_id="8747807">116 Fed. 276, 53 C. C. A. 554; Wilder v. Watts (D. C.) 138 F. 426" court="D.S.C." date_filed="1905-05-31" href="https://app.midpage.ai/document/wilder-v-watts-8757880?utm_source=webapp" opinion_id="8757880">138 Fed. 426.

The order of the District Court will be affirmed, with costs.