55 N.Y. 325

GEORGE H. Muller, Respondent,
v.
JOHN PONDIR, impleaded, etc., Appellant.

The evidence of ownership required in dealing in negotiable paper, in the ordinary course of business, is the possession thereof, properly indorsed so as to pass the title to the holder, and he who purchases from one claiming to have the right of disposal, but who has not these evidences of title, cannot claim as a bona fide holder for value; he only acquires such rights and equities as existed in his vendor, and subject to all equities as against him.^[1]

A party is only estopped by a declaration or representation, inconsistent with the facts asserted and attempted to be proved, when it is made with intent, or is calculated and may be reasonably expected to influence the conduct of another, and when it has had such influence and has induced action from which injury will accrue if a retraction is allowed.^[2]

Where one has given credit upon the faith of the solvency of another who has failed, while yet the fruits of that credit are in the actual or constructive possession or within the reach of the party giving the credit, [326] and who will be the loser unless he can retain or reclaim such fruits, he has the right so to do; and the particular relation of the parties to each other, or the nature of the transaction in which credit is given, is not material. The right is not confined to the sale of goods on credit, and there is no distinction affecting such right between personal chattels of merchandise in transitu, and money or negotiable bills. This right continues so long as the avails of the credit can be traced and identified, until there has been a change in the possession and title.

If an agent has advanced money or incurred a liability upon the faith of the solvency of his principal, and the latter becomes insolvent while the proceeds and fruit of such advances or liability are in the possession of the agent or within his reach, and before they have come to the actual possession of the principal, the agent has a lien upon the same for his protection and indemnity.

Plaintiff, at the request of S. & Co., of New York, drew bills of exchange on London and sold the same in Havana, investing the proceeds in currency bills on New York, payable to the order of S., a clerk of S. & Co. These bills, in a package directed to S. & Co., were delivered to the purser of the steamer C. to be carried to and deposited in the post-office in New York city. Plaintiff telegraphed to S. & Co., stating in substance the sale and purchase, and that the bills purchased had been forwarded by steamer C. S. & Co. applied to defendant P. for a loan, exhibiting to him the telegram; and upon delivery of the telegram, with a letter of S. & Co. agreeing to hand over the bills on arrival, P., relying upon the same in good faith, made the loan desired. Upon the next day S. & Co. failed, owing P. the loan so made. Plaintiff, having learned of the failure before the arrival and delivery of the bills, commenced this action to recover them, and obtained an order therein restraining the postmaster of New York and S. & Co. from transferring or disposing of the same. Held, that P. could not claim as bona fide holder, but only acquired the rights and equities of S. & Co. in the bills; that plaintiff had the right to reclaim the bills, and was not estopped from asserting such right by the telegram.

(Argued December 11, 1873; decided December 23, 1873.)

APPEAL from order of General Term of the Supreme Court in the first judicial department, reversing a judgment in favor of the defendant Pondir, entered upon the decision of the court at Special Terra, and granting a new trial. (Reported below, 6 Lans., 472.)

This action was brought to recover possession of certain bills of exchange. Defendant Pondir only appealed and answered, claiming the bills as a bona fide purchaser.

On the 12th of May, 1869, Schepeler & Co., merchants in [327] New York, sent to the plaintiff, a banker doing business in Havana, under the firm name of Muller & Co., an order, which the plaintiff received, directing him to draw bills of exchange, for £20,000, on J. Henry Schroder & Co., of London, to sell the bills so drawn in Havana, and invest the proceeds in bills of exchange on New York, payable in currency, and to send these last mentioned bills to Schepeler & Co. Upon receiving this order, the plaintiff proceeded to execute it by drawing bills of exchange, as therein directed, for Schepeler & Co., upon J. Henry Schroder & Co., London correspondents of Schepeler & Co., payable sixty days after eight, and selling the same in the city of Havana; among these bills were bills amounting in the aggregate to £9,000, and the proceeds of these £9,000 constitute the fund in controversy in this action. The bills so purchased by the direction of Schepeler & Co. were all made payable to the order of Richard Smith, a clerk in the employment of Schepeler & Co. The bills were inclosed by the plaintiff with a letter of advice in an envelope addressed to Schepeler & Co., and on the 13th day of May, 1869, after the mail-bag for the steamer Cleopatra, plying between the said city of Havana and the city of New York, had been closed and taken on board the vessel, was handed by a clerk of the plaintiff to the purser of the steamer.

On the said 13th day of May, 1869, after the purchase and shipment of the bills in question, the plaintiff at Havana sent to Schepeler & Co., at New York, the following telegram.

"HAVANA, May thirteenth (13th), 1869.

"SCHEPELER & Co.:       

Drew nine (9) twelve (12) and eleven three-quarters (11¾), remit Cleopatra sixty thousand (60,000) twenty-six half (26½).

"MULLER."

This telegram was intended to and did give Schepeler & Co. to understand that the plaintiff had drawn £9,000 aa directed, had sold a portion of the bills at 112 and a portion [328] at 111¾, and against the bills so drawn would remit by the steamer Cleopatra, $60,000 in bills drawn on New York, which they had purchased at 26½ per cent discount. At the time the plaintiff sent this telegram he had no notice that Schepeler & Co. were in failing circumstances. This dispatch was received by Schepeler & Co. late in the afternoon on the same day it was sent, or the next morning.

For several years prior to the 15th day of May, 1869, Schepeler & Co. and the said Pondir had had transactions with each other, including borrowing and lending money. For a year prior to the 15th day of May, 1869, these transactions had been of almost daily occurrence; the loans of money made by Pondir to Schepeler & Co. were in large part made by him as a broker for account of other persons, and in part on his own account. These loans were sometimes made upon security, and sometimes without security, depending upon the state of accounts between the parties.

On the afternoon of the 13th of May, 1869, John F. Schepeler informed the defendant Pondir that lie would want a good deal of currency the next day; Pondir inquired what securities he had to offer; Schepeler answered, that he did not know yet, but would see in the morning.

On the morning of the 14th of May, 1869, the defendant John F. Schepeler called upon the defendant Pondir, and exhibited to him the telegram of Midler & Co., and applied to him for a loan of $70,000. The defendant Pondir thereupon agreed to make a loan to Schepeler & Co. of $70,000 upon the security, and of the currency bills in question, with the understanding that Schepeler & Co. should surrender to him the dispatch, accompanied by a letter expressing their understanding.

Schepeler & Co. then addressed to Pondir a letter, of the following tenor:

"NEW YORK, 14th May, 1869.

"JOHN PONDIR, Esq.:

"DEAR SIR.—Being in want of some funds, and not having any available securities at hand, we inclose the cable tele [329] gram from Havana, advising remittances of about $60,000 currency, which, in case you can furnish us the money, we shall hand over to you on their arrival.

"Yours, truly,

                            "SCHEPELER & CO."

Upon the receipt of this letter, with the cable telegram in question, the defendant Pondir on the same day loaned to Sehepeler & Co. the sum of $70,000, which money has not been repaid. This loan was made by Pondir in good faith, he relying upon the telegram of the plaintiff and the security of the bills in question. At the time of making this loan the defendant Pondir had no knowledge that Sehepeler & Co. were in failing circumstances, and no reason to suppose that their pecuniary condition was not as good as at any time theretofore. In the afternoon of the 15th of May, 1869, the firm of Sehepeler & Co. failed, owing the defendant Pondir the loan in question. The aforesaid sterling bills of exchange, drawn by Muller & Co. on J. Henry Schroder & Co., of London, were not accepted, but were protested for nonacceptance, and thereupon Muller & Co. provided J. Henry Schroder & Co. with funds with which to pay them at maturity, and they were so paid.

On the 17th of May, 1869, the day before the arrival of the steamer Cleopatra at the port of New York, the agent of the plaintiff applied to Sehepeler & Co. to permit him to receive, on behalf of the plaintiff, the letter inclosing the currency bills in question, on the ground that Sehepeler & Co. had failed, and the plaintiff would be obliged to provide for the sterling bills. This permission not being given, the present action was commenced.

The purser, after the arrival of the steamer at New York, handed said package to the postmaster at the city of New York; such delivery was not made until after the letters in the mail bag brought by said steamer had been delivered and distributed, and not until after the bills inclosed in said letter had been demanded of the firm of Sehepeler & Co. and of [330] the postmaster, and not until after this action had been commenced, and in injunction obtained and served on Schepeler & Co. and Smith, restraining them from interfering with, or indorsing, said bills.

The court found as a conclusion of law that the plaintiff did not sustain such a relation to the currency bills of exchange purchased in Havana, the proceeds of which are in controversy in this action, as to entitle him to exercise the right of stoppage in transitu in respect thereof, and directed judgment awarding the bills to defendant Pondir.

W. W. MacFarland for the appellant. Plaintiff had no right to stop the currency in transitu, and, if he ever had any, it was destroyed by the assignment of it to defendant, Pondir. (Gilson v. Caruthers, 8 M. & W., 340; 1 Smith's L.C., 432 a; Smith's Merc. L., 552; Wiseman v. Vanderpot, 2 Vern., 203; Luce v. Prescott, 1 Atk., 246; D'Aquilla v. Lambert, 2 Eden, 75; Feise v. Wray, 3 East, 93; Newson v. Fountain 6 id., 17; Sifkin v. Wray, id., 371; Bell's Com. on Laws of Scotland, 7th ed., 223, 224, 245.) Wherever the right of stoppage in transitu exists, it may be defeated by a sale of the goods in transitu. It is not necessary to a valid sale of the goods that they should be in the actual possession of the vendor. (2 Kent [marg. page], 578; Wilson v. Little, 2 Comst., 443; Dykers v. Allen, 7 Hill, 448; Houser v. Kemp, 3 Barr., 208; Story on Bail., § 290; Davies' D.C.R., 199; 1 Hare, 549; McComber v. Parker, 13 Pick., 175; Calkins v. Lockwood, 16 Conn., 276.) Plaintiff is estopped from asserting a claim to these bills against Pondir. (Cont. Nat. Bk. v. Nat. Bk. of Commonwealth, 50 N.Y., 575; Young v. Grate, 13 E.C.L., 253; Leckbaum v. Mason, T.T.R., 70; Fatman v. Loback, 1 Duer, 354; Bk. of Buffalo v. Kortright, 22 Wend., 348; Putman v. Sullivan, 4 Mass., 45; McDonal v. Muscatine Bk., 37 Iowa.) Pondir was entitled to have the bills indorsed; and the indorsement would have relation to the day of his purchase. (Story's Eq. Jur., § 64; Smith v. Pickering, Peak's Case, 50; Anon [331] 1 Camp., 492; Rollston v. Herbert, 3 T.R., 411; Ex parte Gruning,13 Ves., 206; Ex parte Rhodes, 3 M. & D., 217; Watkins v. Marsh, 2 J. & W.; Pilans v. Van Microps, 3 Ben., 1663; Clarke v. Locke, 4 Ea., 57; Barney v. Worthington, 37 N.Y., 112.) If neither party had a legal title to the bills, equity would give it to the one who had the strongest equity. (Willoughby v. Willoughby, 1 T.E., 763; Blake v. Hungerford, Pr. in Ch. 158; Charlton v. Low, 3 P.Wins., 328; Ex parte Knott, 11 Ves., 609; Shine v. Gough, 1 Ball & B., 436; Bowen v. Evans, 1 J. & L., 264.) The equitable assignee of a chose in action is not liable to the latent equities of third persons of which he was ignorant when he took the assignment. (Livingston v. Dean, 2 J. Ch., 479; Murray v. Lylburn, id., 443; Murray v. Ballow, 1 id., 366; Davis v. Barr, 9 S. & E., 137; Taylor v. Sett, 10 Ban., 431; Mott v. Clark, 9 id., 403; McConnell v. Warwick, 4 liar., 365; Moore v. Holcomb, 3 Leigh, 597; McBlair v. Gibbs 17 How. [U.S.], 232; Ohio Life Ins. Co. v. Ross, 2 Mary. Ch. 225; Judson v. Corcoran, 17 How. [U.S.], 615.)

E. W. Stoughton for the respondent. Poudir was not a bona fide holder of the bills. (Hedges v. Seaty, 9 Barb., 215.) He took the assignment of the bills, subject to all the equities of the original parties. (Bush v. Lathrop, 22 N.Y., 535). Plaintiff was the vendor of the bills, and was entitled to stop the bills in transitu the same as if they had been merchandise. (Smith v. Bowles, 2 Esp., 578; Houston's Law of Stoppage in Transitu, 28; 1 Pars. Ship. & Ad. L., 481, note, 1; 1 Grif. & Hol. on Bankruptcy, 371-375; Feise v. Wray, 3 East, 93; Siffken v. Wray, 6 id., 371; Haws v. Pratt, 17 N.Y., 263.) A vendor's right of stoppage in transitu can only be defeated by a transfer of the bill of lading to one who, Bona fide and without notice that the goods have not been paid for, advances money on the faith thereof. (Newson v. Thornton, 6 East, 41; Holbrook v. Vose, 6 Bosw., 107-111; Stanton v. Eager, 16 Pick., 473; Gardner v. Howland, 2 id., 599; Craven v. Ryder, 6 Taunt., 433; Small v. Moates, 9 [332] Bing., 574; Dixon v. Yates, 5 B. & A., 313; Jenkyns v.Usbome, 7 M. & G., 679, 699; Akerman v. Humphrey, 1 Carr. & P., 53.) Pondir had only such title to the bills as Schepeler & Co. had, which was subject to the right of plaintiff to stop in transitu. (Bush v. Lathrop, 22 N.Y., 538, Davis v. Austin, 1 Ves., 247; Straights v. Hawley, 39 N.Y., 446; Lickborrow v. Mason, 1 S.L.C., 2 W. & T. Eq. Cas., 75; Covell v. Tradesmen's Bk., 1 Paige, 131; Mangles v. Dixon, 3 H. of L. Cas., 712, 714, 718, 731.) To defeat plaintiff's right to stop in transitu the bills should have been actually indorsed and delivered to Pondir. (Roger v. Comptoir, 2 Priv. Coun. Ap., 39; Hedges v. Sealy, 9 Barb., 215.)

ALLEN, J. Pondir who claims title to the bills in controversy, under Schepeler & Co., alone defends this action. As between him and Schepeler & Co., it may be conceded that by the loan of money to the latter firm, under the circumstances established at the trial, and upon their promise to transfer the bills when they should arrive in New York, he acquired an equitable title, and could have enforced a specific performance of the promise, and an indorsement and delivery of the bills to him.

But this equitable right comes far short of conferring upon him the rights of a bona fide holder for value of negotiable paper when transferred in the usual method and in the ordinary course of business.^[3] A transferree of commercial paper for value, in the ordinary course of business, without notice of any defects in the title, is protected by the law-merchant against all latent equities, whether of third persons or of parties to the instrument. His title is perfect, and his light to enforce the obligation absolute. But if any of the circumstances are wanting which go to make up this perfect title, a purchaser or transferree of commercial paper takes it subject to the same rules which control in the case of a transfer or assignment of non-negotiable instruments.

The defendant Pondir never became the holder of the bills in dispute; they were not transferred to him by indorsement [333] in the usual way or in any other manner, and were not at any time in his possession, either actual or constructive; they were never within his control or in the possession or within the control of Schepeler & Co., from and under whom ho claims title. He only acquired such rights and equities as existed in Schepeler & Co., subject to all equities as against them. He occupies precisely the position of that firm; and whatever rights or remedies the plaintiffs or others had against them, in respect to the bills, can be asserted against Pondir as their equitable assignee. (Gilbert v. Sharp, 2 Lansing, 412; Hedges v. Sealy, 9 Barb., 214; Story on Prom. Notes, § 120, note 1; id., § 120, a; Savage v. King, 17 Maine, 301; Calder v. Billington, 15 id., 398; Southard v. Porter, 43 N.H.R., 379.)

Neither was there anything in the history of the transaction or the acts of the parties which will give Pondir a better or other title as against the plaintiff than the mere equitable title, valid as against Schepeler & Co. only. The plaintiff is not estopped from asserting the same equities and the same legal rights against Pondir which would have availed against Schepeler & Co. The only act of the plaintiff upon which stress is laid and upon which an estoppel is sought to be based, is his dispatch to Schepeler & Co.; elliptical and obscure in its terms, but which was understood by the parties to whom it was addressed, and which indicated that the sender had drawn and sold bills on London to the amount of £9,000, at the prices stated, and against the bills so drawn would remit, by the steamer Cleopatra, $60,000 in bills on New York, which had been purchased at the discount stated. The telegram was true in all its parts; and the plaintiff does not seek now to controvert the truth of any of the statements there made. There was nothing in it to indicate the relation of the plaintiff or his correspondents, Schepeler & Co., to the bills, or the title of either to them. There was no statement inconsistent with the absolute ownership, by the plaintiff, of the bills to arrive by the Cleopatra, or with any claim the plaintiff might make to or in respect [334] of them as against Schepeler & Co., or any other person. The title of the bills was not the subject of or referred to in the dispatch; and if Pondir acted at all on the faith of Schepeler & Co.'s ownership or right to dispose of the bills, it was upon their statement of such ownership and right, and not upon any statement of the plaintiff; and the case shows, as the court has found, that Pondir did part with his money solely on the credit of Schepeler & Co., on the faith of their representations and promise to hand the bills over on their arrival. The only practical use of the telegram was to identify in a manner the bills which Schepeler & Co. claimed to own, and promised to transfer. The court below has found that the loan was made by Pondir in good faith; he relying upon the telegram of the plaintiff and the security of the bills in question. He could only rely on the telegram so far as it assumed to state facts; and the only security by means of or upon the bills he acquired was by the written promise of Schepeler & Co. to transfer them; and their representations de hors their dispatch.

But an insuperable difficulty in predicating an estoppel in pais against the plaintiff upon the dispatch is, that it was designed solely for the information of the persons to whom it was addressed, and not to influence the action of any other person; and the communication was not of a character calculated to or which could, in the usual course of business, influence the action of third persons; and least of all was it calculated to induce any one to part with money upon the credit of the bills referred to, and faith in the title of Schepeler & Co. to them. The plaintiff could not have foreseen that the dispatch would be used as the basis of a credit, or that money could be borrowed on the faith of it. Every element of an estoppel was wanting. A party is only concluded, that is, estopped from alleging the truth by a declaration or representation, inconsistent with the facts asserted and attempted to be proved, when it is made with intent, or is calculated, or may be reasonably expected to influence the conduct of another in a manner in which he will be preju [335] diced if the party making the statement is allowed to retract, and when it has influenced and induced action, from which injury and loss will accrue of a retraction as allowed. (Finnegan v. Carraher, 47 N.Y., 493; Dezell v. Odell, 3 Hill, 215; Copeland v. Copeland, 28 Maine, 525; Brown v. Bowen, 30 N.Y., 519; Frost v. Saratoga Mutual Ins. Co., 5 Den., 154, and cases cited by BRONSON, J.; Brown v. Wheeler, 17 Conn., 345; Continental Nat. Bank v. Nat Bank of Commonwealth, 50 N.Y., 575.) There is no statement in the cable dispatch which is inconsistent with the rights now asserted by the plaintiff; and the assertion of such rights is not against good conscience in any view of the dispatch or the use designed or expected to be made of it, or which was actually made of it. The plaintiff is not therefore estopped from asserting any right he may have to the bills in controversy.

Neither does the rule invoked by Pondir, that when one of two innocent persons must suffer from the wrongful or fraudulent act of another, the loss should devolve upon him by whose act or omission the wrong-doer has been enabled to perpetrate the fraud, avail him. That applies only when the wrong-doer is invested by the party sought to be charged, with the ordinary indicia of ownership, and jus disponendi of property, or an apparent authority to do the act from which loss must accrue to one of two innocent parties. (Commercial Bank of Buffalo v. Kortright, 22 Wend., 348; Young v. Grote, 4 Bing., 253.) The evidence of ownership of negotiable bills is their possession, properly indorsed, so as to pass the title to the holder. There is no such thing as a symbolical delivery of negotiable instruments; and the law does not recognize, for commercial purposes, a right of possession as distinct from the actual possession. Had Schepeler & Co. had actual possession, themselves, of the bills, and then indorsed and transferred them to Pondir, the plaintiff would have been remediless. This is not only the legal evidence of ownership, but it is that required in dealing in commercial paper in the ordinary [336] course of business; and he who acts with less evidence of title in one claiming to have the right of disposal, does so at his peril. As owners, Schepeler & Co. had no apparent title upon which the plaintiff could or did rely.

Neither can an authority be spelled out or inferred from the dispatch to Schepeler & Co. to deal with the bills, either as their own or as the agents of the plaintiff or other owner. The apparent authority which will charge the plaintiff rather than the defendant with loss, under the rule invoked against him, must be found in the terms of the dispatch and not in the declarations and representations of Schepeler & Co. The court has found that the dispatch gave to Schepeler & Co.; and it could give no other or different idea to any other person, the information that he had drawn on London, and sold the bills, "and against the bills so drawn would remit, by the steamer Cleopatra, $60,000 on bills drawn on New York." For what purpose or for whose use the bills on New York were to be remitted, was not stated and cannot be implied, except that they were remitted against the London bills. The meaning and purpose of the dispatch, beyond the meager and barren advice of a proposed remittance for some purpose, must be gathered from the course of business of the parties, or from facts not stated in or to be implied from its terms. But, as remarked in considering the question of estoppel, the communication was legitimate, and in the ordinary course of business not calculated to mislead any one as to the relation of the parties to each other or the bills in controversy; and certainly no person, familiar with commercial usage and the law relating to bills of exchange, could anticipate that such a dispatch could avail to enable any one to negotiate the bills as owner, or otherwise, before their arrival, or that money would be advanced upon any supposed title or agency of the receiver of the dispatch to, or in respect to, the bills.

The only remaining inquiry is, as to the right of the plaintiff as against Schepeler & Co., as Pondir occupies precisely their position, and has succeeded to their rights. [337] The doctrine of stoppage in transitu was largely discussed at the bar in the argument of the case.

It has no direct application; and as the transaction is in its nature entirely distinguishable from the sale of goods upon credit to one who becomes insolvent before they come to his actual possession, or other persons have acquired rights as purchasers for value, and the rules which control in respect to the evidence of title and the modes of transmitting or transferring the title of negotiable instruments, and merchandise or other personal chattels are so entirely dissimilar, that but little advance will be made in arriving at a correct result in this case by reviewing the reported decisions referred to by counsel, elucidating the right and declaring its limits and the cases in which it may be exercised. This is not a case of stoppage in transitu. But the principle which lies at the foundation of the right of stoppage in transitu is very directly involved in this action, and upon it the rights of the plaintiff to the bills in controversy, in a great measure, depend. The right of a vendor to follow and reclaim merchandise sold upon credit, upon the happening of the insolvency of the purchaser, is an equitable right and is favored in the law. (Harris v. Pratt, 17 N.Y., 249; Smith v. Bowles, 2 Esp. R., 578.) It had its origin in a court of equity, but has become thoroughly engrafted upon the common law, and is now well established as a legal right; and the same reasons which give to a seller of goods to a distant purchaser who becomes insolvent, the right to stop them if he can do so before they come into the possession of the purchaser, will give to the plaintiff here the right to retain the bills in suit. Difficulties exist in the way of the seller of merchandise pursuing and retaking his goods, after sale, by which the title had passed to the buyer, which do not exist in respect to these bills; and this right to stop goods in transitu may be lost under circumstances which would not and could not, in the nature of things, apply to dealings in or in respect to commercial paper.

The equities upon which the right of stoppage in transitu [338] rests are stated in Wiseman v. Vandeputt (2 Vern., 203) The plaintiffs, as assignees in bankruptcy of Bonnells, merchants in London, brought their bill for a discovery and relief touching certain silks consigned to the Bonnells by an Italian firm; but before the ship sailed from Leghorn, news came that the Bonnells had failed, and thereupon the Italians altered the consignment, and consigned the silks to the defendants. The court ordered a trial at law in an action of trover, to determine whether by the first consignment the property of the silks vested in the Bonnells, and upon the trial the plaintiffs had a verdict. Upon the cause coming on to be heard upon the equity reserved, the court declared that the plaintiffs ought not to have had so much as a discovery, much less any relief, in regard that the silks were the proper goods of the Italians, and not of the Bonnells, nor the produce of their effects; and therefore, they having paid no money for the goods, if the Italians could, by any means, get their goods again into their hands, or prevent their coming into the hands of the bankrupts, it was but lawful for them so to do, and very allowable in equity. The precise equity of the Italians and their English consignees, the defendants in that case, grew out of and rested upon the fact that, in the course of commercial dealings, the Italians had given credit to the Bonnells, relying upon their solvency and their ability to meet their obligations, and that firm having failed, the consideration which induced the Italians to engage in the transaction and part with their goods had failed, and unless they could repudiate the consignment, and retake their goods, they would be the losers, and that equity did not require that the transaction should be consummated, and the goods of the Italians go to swell the assets of the bankrupts, or go to some favored creditor, and they left to come in as creditors under the statute of bankrupts.

The fact that the credit and the danger of loss arose from a sale of merchandise, rather than in any other commercial dealings, had no peculiar force, and added no charm to the equity. All that is necessary to bring a case within the pre [339] cise principle, and the reasons assigned in that case, and which have never been repudiated, but have come to lie favored both at law and in equity, is that faith and credit shall have been given to the solvency of another who has failed, while yet the fruits of that credit are in the actual or constructive possession, or within the reach of the party giving the credit, and who will be the loser unless he can retain or reclaim such fruits; and the particular relation of the parties to each other, or the nature of the transaction in which credit is given, is not material, neither is the right confined to goods or personal chattels, or to a sale of goods on credit. There is no distinction between personal chattels in transitu, or merchandise or money, or negotiable bills, which affects the rights of parties. (Smith v. Bowles, 2 Esp., 578.)

It may be remarked that fraud is not a necessary ingredient of the equitable right involved in this action, and asserted by the plaintiff. Had the court below found as a fact that Schepeler & Co. fraudulently induced the plaintiff to engage in this transaction, we should have regarded it as abundantly sustained by the evidence. Indeed, it is difficult to see how they could, with honest intent, upon the eve and within three days of an avowed insolvency, so complete and absolute that it is doubtful whether their assets will pay ten per cent of their liabilities, induce an innocent foreign correspondent to assume liabilities for them to an amount exceeding $100,000, under the circumstances and in the form detailed in the case; but it is not necessary to establish actual fraud to enable the plaintiff to assert his right to retain the bills. The plaintiff became the purchaser of the bills in controversy and undertook to remit them to Schepeler & Co. upon the credit of that firm, and relying upon their solvency and ability to provide for their payment in London, and to indemnify him against them. They were not bought with the funds and were not the produce of the effects of Schepeler & Co., or bought upon their credit, except as the plaintiff gave them credit. They were bought with the [340] avails of the credit of the plaintiff, and his credit only. The bills on London, from the sale of which the funds were obtained for the purchase of these bills, were drawn by the plaintiff, who was the only person liable upon them. It is true they were drawn by direction of and against the account of Schepeler & Co. with the London bankers, but they were not accepted, and upon the non-acceptance the plaintiff was the only party liable to the holders upon the bills, and against this liability he only had the undertaking express or implied of Schepeler & Co. In truth, Schepeler & Co. had no credit with the London bankers, the drawees, but their account was largely overdrawn. Before the bills could be accepted, and probably before they left Havana, news was received of the failure of Schepeler & Co., upon whose credit and solvency the plaintiff had relied in drawing and selling the bills. In brief, the plaintiff had, before receiving intelligence of the insolvency of Schepeler & Co., by the negotiation and sale of bills drawn by himself, and upon which he alone was responsible, obtained the money with which the bills in controversy were purchased. It was in one sense a borrowing of money by the plaintiff upon his credit for the use of Schepeler & Co. If while the money, the proceeds of the sale of the London bills, had been in the actual possession of the plaintiff, he had learned of the insolvency of Schepeler & Co., the latter could not either in law or equity have compelled him to pay it over to them or their assignee in bankruptcy, or any favored creditor. He could have retained it to indemnify himself against the liability incurred. An agent may have a lien on the property or funds of his principal for moneys advanced or liabilities incurred in his behalf; and if moneys have been advanced or liabilities incurred upon the faith of the solvency of the principal, and he becomes insolvent while the proceeds and fruit of such advances or liability are in the possession of the agent, or within his reach, and before they have come to the actual possession of the principal, within every principle of equity the agent has a lien [341] upon the same for his protection and indemnity. If necessary to his protection, the plaintiff would have been permitted to repudiate the agency and assume that position which would best protect himself from loss by reason of the insolvency of his principal. An action by Schepeler & Co. for money had and received to their use, and which ex aequo et bono belonged to them, would have met with no favor. The case is not changed or the rights of the parties varied by a conversion of the money into negotiable paper. The rights and equities of the parties continue so long as the money can be traced and identified, until there has been a change in the possession and title. Had the plaintiff purchased bills payable or indorsed to Schepeler and had them upon his desk ready for transmission at the time of the receipt of news of the insolvency of that firm, no action could have been sustained by them for recovery of the bills in their possession without indemnity to the plaintiff.

Whether the proceeds of the London bills were invested in negotiable bills or merchandise cannot affect the rights of the plaintiff. The lien would be as sound and stand upon the same principle in the one case as the other. If the purchase had been of goods instead of bills, a lien would have existed in favor of the plaintiff, which would have given him the rights of a vendor, within the principle decided in Feise v. Wray (3 East., 93). The substance, rather than the form of a transaction, determines the rights and obligations of the parties, and, within the reason of the rule giving a vendor a lien for the price of goods sold, and a right to stop them in transituto the purchaser on the happening of his insolvency, he, upon whose credit or with whose means the goods are purchased and by whom they are consigned to the purchasers, is the seller of the goods. The lien does not depend upon the character of the property, and is equally valid in respect to negotiable bills in actual possession, or capable of being reached as to chattels. The bills in controversy were at all times, up to the time of the commencement of this action, in the actual or constructive possession of the plaintiffs. The [342] purser of the steamer to whom he delivered the package in which they were inclosed was the agent of the plaintiff. He received the package from the plaintiff with special directions to deposit the same in the Post-office in New York city, and those directions were revocable by the plaintiff at any time. He could have recalled the package before the steamer sailed, and could he have overtaken the steamer in mid-passage to New York the same right would have continued, and had he met the purser as he stepped on shore on his arrival in New York he would have been subject to the direction of the plaintiff in respect to the package. The bills were not committed to the post addressed to Schepeler & Co., neither were they intrusted to a common carrier consigned to that firm, but were placed in the possession of a servant and agent of the plaintiff for a special purpose, and were, for all purposes connected with his lien and right to retain them, as if they had been during all that time locked up in his safe in Havana. The fact that the bills were payable, either in the body or by indorsement, to Smith, a clerk of Schepeler & Co., and with intent to transfer the title to them, does not invalidate the lien or affect the equitable rights of the plaintiff. The transfer was incomplete until delivery, and a transaction begun relying upon the solvency of the parties concerned need not necessarily be consummated, if insolvency occurs. The fact might embarrass the plaintiff in enforcing the collection of the bills, but cannot destroy or invalidate his equitable lien.

I am of the opinion that the plaintiff had and has the legal and equitable title to the bills as against Schepeler & Co., and Pondir claiming under them, and that the order granting a new trial should be affirmed and judgment absolute for the plaintiff.

All concur.

Order affirmed, and judgment accordingly.

[1] Barnard v. Campbell, 55 N.Y. 461; Spinning v. Sullivan, 48 Mich. 9.

[2] County of Randolph v. Post, 93 U. S. 514.

[3] Fairbanks v. Sargent, 104 N.Y. 115.

174 F.Supp. 495 (1959)

Burton G. SHIRO, Trustee of the Estate of The American Fiberlast Company, Bankrupt
v.
Gordon W. DREW.

Civ. No. 5-111.
United States District Court D. Maine, S. D.
June 30, 1959.

[496] John J. Flaherty, Portland, Me., for plaintiff.

Vincent L. McKusick, Portland, Me., for defendant.

GIGNOUX, District Judge.

This is an action brought pursuant to the provisions of Section 60 of the Bankruptcy Act, 11 U.S.C.A. § 96, by plaintiff as trustee in bankruptcy of the American Fiberlast Company to recover as a voidable preference the sum of $2,056.87 paid by the bankrupt to defendant on February 11, 1957.

The facts necessary to a decision in the matter have been stipulated by the parties and, as stipulated, are so found by the Court as follows:

In August or September, 1956 the American Fiberlast Company obtained a contract from Hazeltine Electronics Corporation for the construction of a twenty-one foot Radome^[1] for the price of $4,900. The purchase order for the Radome was delivered by Fiberlast to defendant and retained by him until February 11, 1957 for use in attempting to borrow money for the Corporation to perform the contract.

On November 1, 1956 Fiberlast, by Joseph L. Brewster, its president, executed under its corporate seal and delivered to J. Riker Proctor and defendant the following instrument, which was in letter form on the corporate stationery:

"Nov. 1, 1956

"To J. Riker Proctor and Gordon L. Drew

"Gentlemen:

"Whereas The American Fiberlast Co. has received a contract for a 21 Radome from Hazeltine Electronics Corp. totaling $4900.00 but is unable to finance the purchase of the necessary materials and labor to construct the dome—the American Fiberlast Co. agrees that any money advanced by Mr. Proctor and Mr. Drew for the specific expense of manufacturing the Radome will be paid immediately to Mr. Proctor and Mr. Drew upon receipt of Hazeltine's remittance irrespective of any other demands from other creditors.

"The American Fiberlast Co.

(Corp. "/s/ J. L. Brewster Seal) "by Joseph L. Brewster, President"

Subsequent to November 1, 1956 defendant loaned to Fiberlast the sum of $2,056.87 for the specific purpose of permitting it to perform its contract with Hazeltine. This amount was loaned by defendant in reliance upon the instrument of November 1, and the money so loaned was in fact used by Fiberlast for the performance of the Hazeltine contract. With the help of these funds Fiberlast completed the contract and received the $4,900 contract price from Hazeltine on February 11, 1957. On the same date Fiberlast repaid to defendant the $2,056.87 here in issue.

Fiberlast was adjudged a bankrupt on petition of J. Riker Proctor and two others filed on February 20, 1957. The stipulation recites that at all times material hereto Fiberlast was insolvent; defendant had reasonable cause to believe Fiberlast was insolvent; and there were in existence creditors of Fiberlast, other [497] than defendant, who have not been repaid their debts.

Section 60 of the Bankruptcy Act provides in part as follows:

Sec. 60 "Preferred creditors"

"a. (1) A preference is a transfer * * * of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.

* * * * * *

"b. Any such preference may be avoided by the trustee if the creditor receiving it * * * has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent. Where the preference is voidable, the trustee may recover the property * * *. For the purpose of any recovery or avoidance under this section, where plenary proceedings are necessary, any State court which would have had jurisdiction if bankruptcy had not intervened and any court of bankruptcy shall have concurrent jurisdiction.

On the stipulated facts, the disputed payment was concededly a transfer of property by a debtor, while insolvent, made within four months before the filing of a petition in bankruptcy, for the benefit of a creditor, who had reasonable cause to believe that the debtor was insolvent, the effect of which was to prefer that creditor. Thus the only question for determination by the Court is whether or not the sum of $2,056.87 was transferred to defendant "for or on account of an antecedent debt." On this issue defendant contends that the letter of November 1, 1956 was either a partial assignment or a declaration of trust by Fiberlast of a portion of the proceeds of the Hazeltine contract, and that the repayment of his loan was, in consequence, not "for or on account of an antecedent debt." Plaintiff's position is that the letter was a mere promise to pay out of a particular fund, and that the subsequent payment was accordingly "for or on account of an antecedent debt," preferential and voidable.

With respect to defendant's first contention, it is clear that if the instrument of November 1, 1956 was a partial assignment^[2] given as security for loans to be made to Fiberlast by defendant, no preference occurred when the corporation repaid the $2,056.87 subsequently loaned it by defendant. Doggett v. Chelsea Trust Co., 1 Cir., 1934, 73 F.2d 614. It is equally clear that if the instrument was no more than a promise to pay from a particular source, the repayment to defendant was in satisfaction of a pre-existing debt and preferential. See Lone Star Cement Corp. v. Swartwout, 4 Cir., 1938, 93 F.2d 767, 769. Decision of this aspect of this case consequently hinges upon the proper construction of the instrument of November 1, 1956—a construction controlled by the law of Maine, where the instrument was executed. Manchester Nat. Bank v. Roche, 1 Cir., 1951, 186 F.2d 827, 829; Lone Star Cement Corp. v. Swartwout, supra, 93 F.2d 770; In re Dodge-Freedman Poultry Co., D.C.N.H.1956, 148 F. Supp. 647, 650, affirmed per curiam sub nom. Dodge-Freedman Poultry Co. v. Delaware Mills, Inc., 1 Cir., 1957, 244 F. 2d 314.

No Maine case succinctly sets forth the requisites of a valid assignment. However, it is hornbook law that an assignment is an act or manifestation by the owner of a right which indicates his intention to transfer, without further action, that right to another. See Restatement, Contracts § 149(1) [498] (1932). And the courts have uniformly recognized that an agreement to pay out of a particular fund, without more, is not an assignment, but that to constitute an assignment there must be a manifestation of an intention by the assignor to relinquish control of the right assigned and to appropriate that right to the assignee. Christmas v. Russell, 1871, 14 Wall. 69, 84, 81 U.S. 69, 84, 20 L.Ed. 762; Lone Star Cement Corp. v. Swartwout, supra; B. Kuppenheimer & Co. v. Mornin, 8 Cir., 1935, 78 F.2d 261, 101 A.L.R. 75, certiorari denied 1935, 296 U. S. 615, 56 S.Ct. 135, 80 L.Ed. 436; Farmers' Bank v. Hayes, 6 Cir., 1932, 58 F. 2d 34, 37, certiorari denied 1932, 287 U. S. 602, 53 S.Ct. 8, 77 L.Ed. 524; East Side Packing Co. v. Fahy Market, 2 Cir., 1928, 24 F.2d 644, 645; In re Dodge-Freedman Poultry Co., supra, 148 F. Supp. 650; 2 Williston on Contracts § 428 (Rev. ed. 1936). While no particular words are required for an assignment (See e. g. Wade v. Bessey, 1884, 76 Me. 413), the intent to transfer a present interest must be manifest, and the assignor must not retain any control over the right assigned or any power of revocation. In fact, it frequently has been said that the test is whether or not the debtor would be authorized to pay the amount directly to the person claiming to be the assignee, without further action or consent by the assignor. See Christmas v. Russell, supra, 14 Wall. 84, 81 U. S. 84; Farmers' Bank v. Hayes, supra, 58 F.2d 37; East Side Packing Co. v. Fahy Market, supra, 24 F.2d 645; 2 Williston on Contracts § 428 (Rev. ed. 1936). As stated in Lone Star Cement Corp. v. Swartwout, supra (93 F.2d at pages 769-770):

No particular phraseology is required to effect an assignment, and it may be either in oral or written form; but the intent to vest in the assignee a present right in the thing assigned must be manifested by some oral or written word or by some conduct signifying a relinquishment of control by the assignor and an appropriation to the assignee. * * *" (Emphasis supplied.)

With these fundamental principles in mind, the Court turns to the interpretation and effect of the writing involved in this case. As with any written instrument, the intention of the parties controls in determining whether it constitutes an assignment. See Wolters Village Management Co. v. Merchants and Planters National Bank of Sherman, 5 Cir., 1955, 223 F.2d 793, 798. And the intention of the parties is to be gathered from the writing construed in light of the subject matter, the motive and purpose of making the agreement, and the object to be consummated, the words used being given their common and ordinary meaning. See Bar Harbor & Union River Power Co. v. Foundation Co., 1930, 129 Me. 81, 85, 149 A. 801; Salmon Lake Seed Co. v. Frontier Trust Co., 1931, 130 Me. 69, 71, 153 A. 671. So viewed, the instrument of November 1, 1956 is susceptible of only one reasonable interpretation. It provides that any money "advanced" by Mr. Proctor and defendant for the manufacture of the Radome "will be" repaid immediately "upon receipt of" Hazeltine's remittance, irrespective of any other demands from other creditors. There is nothing in its terms indicative of that manifestation of present surrender of control essential to an assignment. Language of present transfer is wholly lacking. Defendant asserts that the instrument was drawn by laymen, inartistically perhaps, solely with the intention of securing future advances this defendant and Mr. Proctor might make to attempt to save a sinking corporation. Mayhap such was the case. Unfortunately for this defendant, the Court has before it no evidence of what the parties intended save the instrument itself. Whether it was authored by laymen or lawyers, it speaks clearly in future terms and can rise to no higher legal status than a promise to pay out of a particular fund to come into existence in the future. Insofar as this record discloses, the debtor was not notified that the contract had been assigned, nor was [499] any attempt made to limit the Corporation's control over the contract or its proceeds. Cf. Lone Star Cement Corp. v. Swartwout, supra, 93 F.2d 769. There being no evidence of an intent to transfer any immediate right to defendant, but rather evidence only of a promise to pay at a future date, the authorities which have been cited compel the conclusion that no assignment was intended or effected by the instrument of November 1, 1956.

The two Maine cases of Buck v. Swazey, 1852, 35 Me. 41 and Harlow v. Bartlett, 1902, 96 Me. 294, 52 A. 638, upon which defendant relies, are not in conflict with the foregoing conclusion. Swazey, in its aspects here material, involved an agreement by the defendant to "account for and pay" to plaintiff one-sixth of the proceeds of certain notes secured by a mortgage of real estate, in which the Court found that defendant owned an equitable interest. The mortgage having been foreclosed, the Court construed the agreement as a contract to convey the defendant's interest in the mortgaged real estate, and hence specifically enforceable in equity under familiar principles. In Bartlett, the Court was concerned with a purported assignment of wages in the form of an instrument addressed to the assignor's employer and recorded in accordance with the applicable Maine statute. The Court construed the instrument as a direction or order by the employee to the employer to pay to the assignee the indicated amounts of wages then due and to become due to the employee.

Nor does Barnes v. Alexander, 1914, 232 U.S. 117, 34 S.Ct. 276, 58 L.Ed. 530, support defendant's position here. That case related specifically to the question of whether an equitable lien may arise from an attorney's contract with his client for a contingent fee. The Supreme Court held, without reference to the subject of assignments, that an equitable lien might be created on the fund eventually obtained through the attorney's services. Barnes v. Alexander has not been regarded as authority for the recognition of an effective assignment in circumstances such as those in the instant case. Lone Star Cement Corp. v. Swartwout, supra, 93 F.2d 770. Its limited scope is indicated by the following comment in B. Kuppenheimer & Co. v. Mornin, supra (78 F.2d at pages 264-265):

"Fairly good reasons for putting aside the strict requirements of the doctrine of equitable assignments can be found in the case of an asserted lien by a lawyer for his fee, on the money recovered as the result of litigation, for the efforts of the lawyer bring the fund into existence. In such case it may be said, arguendo, that the lawyer asserting the lien is, in a manner of speaking, a joint adventurer, and such cases scarcely belong in the category of equitable assignments. * * *

"Many cases are to be found sustaining the rule that a promise to pay out of a particular fund, when it shall come into existence, does not create an equitable assignment of that fund. As counsel for defendants on argument aptly said, in effect, that business and commerce will be greatly harmed, hamstrung, and impeded if every agreement of an Iowa farmer to pay a debt out of a crop of corn, when he shall have sold the corn, is to be held to be an equitable assignment of the proceeds of such corn."

Defendant's alternative suggestion that the November instrument constituted a declaration of trust must also fail. The Court's construction of the instrument as a promise to pay in the future requires rejection of this argument. See 1 Scott on Trusts § 12 (2d ed. 1956). As stated in Northwestern Mutual Life Insurance Co. v. Collamore, 1905, 100 Me. 578, at page 584, 62 A. 652, at page 655:

A declaration of trust to be effectual, must be explicit, unconditional, and complete * * * the [500] declaration must be of a present trust, vesting the equitable title in the beneficiary thereby and irrevocably."

On the analysis previously stated, the November instrument evidences no intent to vest equitable title to any of the proceeds of the Hazeltine contract irrevocably in defendant.

Since the November 1 instrument was neither a partial assignment nor a declaration of trust, it follows that the payment by Fiberlast to defendant on February 11, 1957 was a preference within the meaning of Section 60, sub. a of the Bankruptcy Act and may be avoided by the Trustee under Section 60, sub. b.

Judgment is accordingly ordered for plaintiff in the amount of $2,056.87, with costs.

[1] A Radome is a plastic cover for out door radar equipment.

[2] A partial assignment is valid in Maine. National Exchange Bank of Boston v. McLoon, 1882, 73 Me. 498.

148 F.Supp. 647 (1956)

In the matter of DODGE-FREEDMAN POULTRY COMPANY, Debtor.

No. 5465.
United States District Court D. New Hampshire.
December 4, 1956.

[648] Wyman, Starr, Booth, Wadleigh & Langdell, Robert P. Booth, Manchester, N. H., for Delaware Mills, Inc.

J. Morton Rosenblum, Manchester, N. H., Widett & Kruger, Joseph Kruger, Boston, Mass., for debtor in possession.

CONNOR, District Judge.

This is a petition for review of an order entered May 25, 1956, by the Referee in Bankruptcy. The petitioner, Dodge-Freedman Poultry Company, the debtor in this proceeding, seeks to have set aside a dividend allowed one of the creditors.

On January 31, 1955, Dodge-Freedman Poultry Company, sometimes hereinafter referred to as Debtor, filed a petition for an arrangement under Chapter XI of the Act of Congress relating to Bankruptcy. Title 11 U.S.C.A. §§ 701-799. A Plan of Arrangement was subsequently adopted which provided that a total dividend of fifteen percent be paid to unsecured creditors as full satisfaction for their claims. Among the general creditors to file a proof of claim, together with a duly executed Acceptance of the Agreement, was Ann Freedman, a/k/a Annette Freedman, who, on April 15, 1955, set her claim at $51,000. On December 15, 1955, some time after the "acceptance" of the plan but before its "confirmation," she filed an affidavit under General Order 41 of the Bankruptcy Act, waiving any and all rights to share in the deposit made by the debtor to cover its obligations and to share in any dividend under the plan. She is the wife of Harry Freedman, who was and still is the president, clerk, director, and principal stockholder in the debtor corporation. For purposes of this proceeding, it has been agreed to consider the claim filed and waived by her as being a claim of Harry, and the amount of the debt has been reduced to $50,000. Since a dividend of fifteen percent was declared, this would have entitled Harry Freedman to receive a dividend of $7,500 had the claim not been waived.

Another unsecured creditor which accepted the Plan of Arrangement was Delaware Mills, Inc., sometimes hereinafter referred to as Delaware, a corporation duly chartered under the laws of the State of New York, which filed a proof of claim totaling $42,594.63 on April 25, 1955. This claim was allowed and a dividend of fifteen percent or $6,389.19 paid, leaving a balance of $36,205.44. On this unpaid balance, Delaware Mills, Inc. filed another proof of claim, asserting its right to an additional dividend of $7,500 by virtue of a [649] subordination agreement duly executed on May 11, 1954, between itself and Harry Freedman.^[1]

The debtor objected to allowance of this second dividend. It contended that the agreement was nothing more than a subordination contract which gave Delaware Mills, Inc. no property interest in the debt owed by Dodge-Freedman Poultry Company to Harry Freedman, at least not until such debt was actually paid to him. It contended that by its very language the contract was not an assignment or a subrogation agreement. Delaware, on the other hand, asserted that no matter what the contract originally may have been, the intervention of bankruptcy, in effect, caused it to become an equitable assignment. To support this argument, Delaware relied upon Bird & Sons Sales Corporation v. Tobin, 8 Cir., 1935, 78 F.2d 371, 100 A.L.R. 654. In that case, a group of creditors signed an agreement subordinating payment of the debtor's then existing indebtedness to them to the prior payment and satisfaction of all future indebtedness. Later the debtor went into bankruptcy, after incurring indebtedness to the other creditors, and the signers, despite their agreement, filed proofs of claim and demanded a dividend of the same percentage due the subsequent creditors. They argued that Section 65, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 105, sub. a made all such contractual agreements null and void since it requires equal distribution of assets to all creditors.^[2] The Court of Appeals for the Eighth Circuit rejected this contention and held that there is nothing in the Bankruptcy Act nullifying otherwise valid prior agreements between creditors. On the strength of this opinion, Delaware Mills, Inc. suggested that the equity power of a Bankruptcy Court automatically converts a subordination agreement into an equitable assignment upon the filing of the petition in bankruptcy.

This reasoning violates the basic principle that intervention of bankruptcy does not change the existing rights of the various parties, and the Referee did not give it serious consideration. He did, however, refuse to give "judicial sanction to an unconscionable, unjust, inequitable and deliberate act of avoidance," ruling that Freedman was estopped from voluntarily waiving the dividend due under the Plan of Arrangement. He found that the subordination agreement is and always was an equitable assignment of his claim by Freedman to Delaware Mills, Inc. Invoking the equity powers of the Bankruptcy Court, he ordered that Debtor deposit $7,500 as an additional dividend for Delaware Mills, Inc.

In asking this court to overrule the referee's order, Debtor does not question the soundness of the Bird case, admitting that it is a well-settled practice in bankruptcy for courts to enforce agreements between creditors which provide for subordination in liquidation. See 3 Collier on Bankruptcy (14th Ed.) page 2294 (Section 65.06) and cases cited therein. [650] It is Debtor's contention, however, that the Bird decision is not a precedent for the case at bar, since it was a liquidation proceeding and not one under Chapter XI, and because the facts of that case are entirely different from those here.

The argument that the Bird principle cannot be applied to a Chapter XI proceeding is without merit. There is no language in that decision which shows any intention of the court to limit it, nor can any logical reason to do so be found. Speaking for a unanimous court, Woodrough, J., held that bankruptcy is not precluded from applying equitable principles and that it could order distribution of the assets "to accord with the rights of the parties, as such rights were fixed by their own contract." 78 F.2d at page 373. This is just as true under a Chapter XI proceeding as under a liquidation proceeding, and a court may enforce all contracts which do not contravene public policy or the spirit of the Bankruptcy Act.

The second contention of Debtor, that the facts in the Bird case are substantially different from those here, raises a more troublesome question. There, the subordinating creditors actually filed for and attempted to collect dividends allowable on their claims. The court had little difficulty finding that this violated the agreement. In the case at bar, however, Freedman, the prior creditor, has made no attempt to personally collect the dividend due on his claim, but instead has waived all his rights to share in any distribution. Because of this difference in facts, Debtor correctly maintains that the Bird case is not authority here, since the principles which were determinative there cannot be applied to this situation.

The referee, however, did not rely upon the Bird case as direct precedent for his ruling, but rather he cited it as authority for finding prior agreements valid and for exercising equity powers in bankruptcy. He determined that the agreement created an equitable assignment on behalf of Delaware Mills and ordered that the money be paid to it. Although this court is sustaining this order, I do so for reasons different from those found by the referee.

While it is true that the rights of the parties under a contract claimed to constitute an equitable assignment are to be determined by the law of the state where the instrument was executed, there are no New Hampshire cases to guide us, see Pollard v. Pollard, 68 N.H. 356, 39 A.2d 329; Conway v. Cutting, 51 N.H. 407, and therefore we must look to federal principles. Measuring the facts of this case to those principles, it is clear that this was not an equitable assignment. All that Freedman agreed to do was forego collection, but even if he had gone further and promised to collect and then turn the money over to Delaware Mills, Inc., it would not have been sufficient. "An agreement to pay out of a particular fund, however clear in its terms, is not an equitable assignment; a covenant in the most solemn form has no greater effect." Christmas v. Russell, 14 Wall. 69, at page 84, 81 U.S. 69, at page 84, 20 L.Ed. 762.

"The courts have recognized that an agreement to pay out of the particular fund, however clear in terms, is not an equitable assignment. To constitute an equitable assignment, the intent to do so and its execution are indispensable. The assignor must not retain any control over the fund, any authority to collect, or any power of revocation. To do so is fatal to the claim. There must be a transfer of such a character that the fund holder can safely pay, and is compelled to do so, even though he be forbidden by the assignor." East Side Packing Co. v. Fahy Market, 2 Cir., 1926, 24 F.2d 644, at page 645.

"No particular phraseolgy is required to effect an assignment * * *." Lone Star Cement Corporation v. Swartwout, 4 Cir., 1938, 93 F.2d 767, at page 769. "The ultimate test is the intention of the assignor to give and the assignee to receive present ownership of the [651] claim." 2 Williston on Contracts (Rev. Ed.) par. 428, page 1232.

In the case at bar, there was no manifestation of intention, either written, oral, or by conduct, on the part of Freedman to relinquish control, or to make any appropriation to Delaware Mills, Inc. Therefore, no equitable assignment was created, nor is there an equitable lien. Nevertheless, Delaware is entitled to receive the dividend.

When Freedman's claim was filed and allowed, he was faced by a dilemma for he apparently had two choices of disposition, either he could waive the claim or he could accept payment for himself. He was barred from doing either. The forbearance agreement prevented him from collecting and retaining any money on his own behalf so long as Delaware's claim had not been satisfied up to the agreed sum. As a result, it might seem that Freedman was actually fulfilling his contract when he waived all rights, because he was, in effect, forbearing. But equity will regard the substance rather than the form of every agreement and examine its purpose and intent. See 30 C.J.S., Equity, § 107, pp. 513-514. Applying this principle to the contract, it is obvious from its language that its intent and purpose was that Delaware's claim would be "satisfied and paid." Therefore, by looking behind the mere formality of forbearance, equity can take cognizance of the fact that Freedman, to a limited extent, undertook to assure payment of Delaware's claim up to $50,000. Although it is true that Freedman had no duties to perform other than to forbear, he is, at the very least, barred by the spirit of the agreement from taking any action that might prevent the satisfaction of Delaware's claim. By waiving his right to a dividend, Freedman is doing just that. He is returning the money to the debtor against whom Delaware Mills has no further rights since it has already accepted its full, legal share under the Plan of Arrangement. Thus Freedman was estopped from waiving his claim, for to do so violates the intent and purpose behind the agreement.

This is Freedman's dilemma. On one hand he is barred at law from collecting and retaining the dividend, while on the other he is estopped by equitable principles from waiving his rights. The answer to this paradox is that he holds the right to collect the dividend on behalf of another. He is a constructive trustee for Delaware Mills, Inc.

"By the well-settled doctrines of equity, a constructive trust arises whenever one party has obtained money which does not equitably belong to him, and which he cannot in good conscience retain or withhold from another who is beneficially entitled to it; as, for example, when money has been paid by accident, mistake of fact, or fraud, or has been acquired through a breach of trust, or violation of fiduciary duty, and the like." 4 Pomeroy's Equity Jurisprudence, par. 1047; quoted and approved in In re Northrup, D.C., 152 F. 763, at page 771.

The theory behind constructive trusts as defined by the Restatement would seem appropriate here.

"Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises." Restatement of the Law of Restitution, Section 160.

Furthermore, to apply the doctrine of constructive trusts to the case at bar would be in accordance with the liberal scope given the basic principles by the New Hampshire Supreme Court in Morgan v. Morgan, 94 N.H. 116, 47 A.2d 569. And also by the Court of Appeals for this circuit which said:

"* * * It is only by looking at the intent, rather than at the form, that equity is able to treat that as done which in good conscience ought to be done. * * * Equity always attempts to get at [652] the substance of things and to ascertain, uphold and enforce rights and duties which spring from the real relations of the parties. It will never suffer the mere appearance and external form to conceal the true purposes, objects and consequences of a transaction." Peoples-Ticonic Nat. Bank v. Stewart, 86 F.2d 359, at page 361, quoting from Pomeroy's Equity Jurisprudence.

Unlike an equitable assignment, it is immaterial that the parties had no intention of creating a constructive trust. The law creates it for them out of their relationship toward each other.

"Constructive trusts include all those instances in which a trust is raised by the doctrines of equity for the purpose of working out justice in the most efficient manner, where there is no intention of the parties to create such a relation, and in most cases contrary to the intention of the one holding the legal title, and where there is no express or implied, written or verbal, declaration of the trust. They arise when the legal title to property is obtained by a person in violation, express or implied, of some duty owed to the one who is equitably entitled, and when the property thus obtained is held in hostility to his beneficial rights of ownership. As the trusts of this class are imposed by equity, contrary to the trustee's intention and will, upon property in his hands, they are often termed trusts in invitum * * *." 4 Pomeroy's Equity Jurisprudence, par. 1044.

Professor Scott has pointed out that most attempts to define constructive trusts have been too narrow in scope. Nevertheless he offers a definition which seems to have met universal approval and is applicable to this case.

"A constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it. When a person holds the title to property which he is under an obligation to convey to another, and when that obligation does not arise merely because he has voluntarily assumed it, he is said to hold the property in constructive trust for the other and he is called a constructive trustee of the property. He is not compelled to convey the property because he is a constructive trustee; it is because he can be compelled to convey it that he is a constructive trustee." 4 Scott on Trusts (1956), par. 462, page 3103.

The petition for review is denied. The order of the Referee in Bankruptcy is sustained.

[1] The subordination agreement provides as follows:

"For and in consideration of the extension of credit by Delaware Mills, Inc. of Deposit, New York to the Dodge-Freedman Poultry Company of Concord, New Hampshire, I, the undersigned an officer and shareholder of the Dodge-Freedman Poultry Company do hereby subordinate all of my claims against the Poultry Company as reflected on their books in the amount of $50,000 to the account of Delaware Mills, Inc. and that no drawings of any kind as a reduction of the amounts due me from Dodge-Freedman Poultry Company will be made until all amounts due from them by Delaware Mills, Inc. have been satisfied and paid.

"Dated at Concord New Hampshire, ________ this 11th day of May, 1954. Witness my hand and seal.

"                                               "s/ Harry Freedman, Pres.

"Officer and Shareholder of Dodge-Freedman Poultry Company"

[2] Section 65, sub. a provides: Dividends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured.

3 N.Y.2d 395 (1957)

Leonard Sillman et al., Appellants,
v.
Twentieth Century-Fox Film Corporation, Respondent, et al., Defendants.

Court of Appeals of the State of New York.
Argued February 26, 1957.
Decided July 3, 1957.

Jay Leo Rothschild and Max Chopnick for appellants.

Whitman Knapp, David Simon and David D. Brown, III, for respondent.

CONWAY, Ch. J., VAN VOORHIS and BURKE, JJ., concur with FROESSEL, J.; FULD, J., dissents in an opinion in which DESMOND and DYE, JJ., concur.

[398] FROESSEL, J.

Defendant Berman Swarttz Productions, Inc., (hereinafter called Swarttz) entered into separate contracts, under date of June 30, 1953, with plaintiffs and various other persons interested in the Broadway musical revue "New Faces of 1952", in order to produce a motion picture version of the stage production. Plaintiffs' contracts may be summarized as follows:

Swarttz agreed to pay each plaintiff a certain percentage of the net profits of the picture. In exchange, The Intimate Revue Company (hereinafter called Revue), in the basic agreement, granted Swarttz the exclusive right to use the physical properties of the show; New Faces, Inc., (hereinafter called New Faces) granted Swarttz the exclusive right to use its trade names; Julian K. Sprague (and others) invested moneys in the picture by way of interest-bearing loans; and Leonard Sillman agreed to act as the associate producer.

In addition, in the Revue and Sprague contracts, Swarttz agreed to give the distributor of the picture a "Notice of Irrevocable Authority" directing it to pay directly to Revue and Sprague their share of the profits. Similarly, in the New Faces and Sillman contracts, Swarttz agreed to deliver a "Notice of Irrevocable Assignment and Authority" directing the distributor to pay directly to New Faces and Sillman their share of the profits and also agreed that their share would be so paid. All of the contracts permitted assignment.

It was originally contemplated that the picture was to be distributed by the United Artists Corporation in third dimension and color. Shortly thereafter, however, so as to obtain the [399] benefits of the CinemaScope process, it was decided to distribute the picture through defendant Twentieth Century-Fox Film Corporation (hereinafter called Twentieth Century).

In order to effect these new arrangements, Swarttz, on September 8, 1953, entered into a contract with defendant National Pictures Corporation (hereinafter called National), which had a CinemaScope license and a distribution agreement with Twentieth Century. Under this contract, Swarttz assigned to National all of Swarttz's rights under the various agreements with persons, including plaintiffs, having an interest in the production. In consideration, National agreed to pay Swarttz a certain percentage of the net profits of the picture less the percentages to be paid to the persons, firms and corporations, including plaintiffs, entitled thereto. National accepted such assignments and expressly assumed all of Swarttz's obligations thereunder. National also agreed to give Twentieth Century a "Notice of Irrevocable Authority" directing the latter to pay to Chemical Bank and Trust Company for the accounts of Swarttz and of plaintiffs their percentages of the profits and that the bank was to pay these sums directly to Swarttz and plaintiffs.

National's distribution agreement with Twentieth Century had been entered into on April 16, 1951, or more than two years prior to the making of any of the aforesaid agreements. Twentieth Century alleges that plaintiffs knew of this contract before Swarttz's contract with National, but plaintiffs deny that they had any knowledge of the contract until November, 1953. Under its terms, National is to furnish Twentieth Century with 7 to 10 pictures during the ensuing 7 years, each picture to cost a minimum of $400,000 and to be free from all incumbrances and from the claims of owners of any material used in the pictures.

At least 10 days prior to the delivery of each picture, National is to deliver to Twentieth Century: "Photostat copies of all contracts for the acquisition of literary or other material used in the Picture and with producers, directors, musicians, actors, actresses and any other persons who render services for or in connection with the production of the Picture." Twentieth Century is given the right (but not the obligation) to examine such contracts and if, in the opinion of Twentieth Century's attorneys, they are not sufficient to permit full exercise of Twentieth Century's rights or the picture fails to conform to [400] the agreement, National shall, upon written notice within 60 days of receipt of the contracts, be deemed in default. Twentieth Century may terminate the contract upon any default of National. Acceptance of the picture by Twentieth Century shall not be construed to release or relieve National of any of its representations, warranties, indemnities or covenants in the agreement, one of which was to "discharge (1) all claims".

After deduction of a distribution fee and expenses, the receipts of the picture are "payable to or for the account of" National (emphasis supplied). Except for assignments by National to two named corporations, or for the the purpose of securing loans by a prescribed procedure, article TWENTY-FOURTH of the agreement provides, among other things: "(a) * * * neither party hereto shall assign this agreement, in whole or in part, or any rights or monies payable hereunder, without the prior written consent of the other party, nor shall any right hereunder or any property or contract covered hereby devolve by operation of law or otherwise upon any receiver, trustee, liquidator, successor or other person through or as representative of either party." It was further provided that Twentieth Century shall not be required to pay any sum payable to National to anyone except National or one designee only; that Twentieth Century shall not be required to recognize any assignments; and that if Twentieth Century shall receive notice of the existence of any assignment, it shall have the right to withhold payments until the assignment is cancelled or withdrawn.

Under the provisions of this agreement, plaintiffs' contracts with Swarttz and Swarttz's contract with National were submitted for inspection to Twentieth Century, which evinced no objection to any part of these contracts. The picture, although costing only $220,000 instead of the required $400,000, was delivered to and accepted and distributed by Twentieth Century under this agreement. Shortly after the first release of the picture, plaintiffs' attorney gave notice to Twentieth Century's attorney of the direct payment provisions in plaintiffs' contracts and was assured by him that Twentieth Century could and would "hold up distribution of moneys to National" under its contract.

Chemical Bank and Trust Company has refused to accept such funds as a distribution agent, and this contributed to the present [401] controversy. Twentieth Century now holds a portion of the receipts deposited with defendant "Chase National Bank" and threatens to distribute such receipts in disregard of plaintiffs' claims. Both National and Swarttz have refused to execute notices of irrevocable authority as required by their contracts.

In this action, plaintiffs seek a declaration of their rights, the impression of a lien upon the receipts of the picture, a direction to pay to each of them a stated percentage of such receipts, an injunction prohibiting Twentieth Century from otherwise distributing them, an accounting and a money judgment for such sums as they claim are now due them. In addition, specific performance is sought of the agreements of National and Swarttz to execute and deliver the irrevocable notices. At Special Term, Twentieth Century's motion for summary judgment, or, in the alternative, for joinder of indispensable parties, was denied. The Appellate Division reversed on the law, and granted summary judgment without passing on the motion for joinder.

Both National and Swarttz are California corporations doing no business and having no assets in New York. They were served only in California and neither has appeared in this action, although the corporate defendant Swarttz has executed stipulations by Swarttz as president for extensions of time to answer. Other persons, whose contracts with Swarttz in regard to this picture entitle them to similar percentage payments as plaintiffs, have brought suit in California where their claims in some respects are said to conflict with those of plaintiffs.

In our opinion, Special Term was correct in denying defendants' alternative prayer for relief, viz., that assignees other than plaintiffs be brought into this action as indispensable parties. They are not such parties. Each of the plaintiffs in the case relies on a separate and distinct agreement. Even if we deemed them and other assignees as united in interest and conditionally necessary parties, they are all without the jurisdiction of this State, and therefore are not required to be brought into this action, for it can effectively be disposed of without them (Civ. Prac. Act, § 194; Keene v. Chambers, 271 N.Y. 326; Howard v. Arthur Murray, Inc., 281 App. Div. 806; Silberfeld v. Swiss Bank Corp., 266 App. Div. 756; see China Sugar Refining Co. v. Anderson, Meyer & Co., 6 Misc 2d 184). And so with the defendants, National and Swarttz, plaintiffs' [402] assignors (Bergman v. Liverpool & London & Globe Ins. Co., 269 App. Div. 103). Though also outside the jurisdiction of this State, they have nevertheless been named as parties defendant in this action, have been served outside the State under the provisions of sections 232-235 of the Civil Practice Act, and are subject to an in rem judgment.

Since plaintiffs have no direct contractual relationship with Twentieth Century, they can prevail in their claim for direct payments only on the theory of an assumption of such an obligation by Twentieth Century or on the theory of an assignment from Swarttz and National. We see no merit whatever as to the first theory, for, whatever the law may be elsewhere (see Restatement, Contracts, § 164), it is well settled in this State that the assignee of rights under a bilateral contract does not become bound to perform the duties under that contract unless he expressly assumes to do so (Langel v. Betz, 250 N.Y. 159, 164; Matter of Kaufman [Iselin & Co.], 272 App. Div. 578, 581; Smith v. Morin Bros., 233 App. Div. 562, 564; Anderson v. New York & H. R. R. Co., 132 App. Div. 183, 187, 188; New York Phonograph Co. v. Davega, 127 App. Div. 222, 234; 2 Williston on Contracts, § 418A), which is not this case.

As to the second ground pressed on us by plaintiffs, we conclude that Swarttz and National intended a present assignment to plaintiffs of a portion of the funds to become due to the former from Twentieth Century, and that such funds would ordinarily be assignable. (Matter of Gruner, 295 N.Y. 510, 517, 518.) All that was left for the future was the formality of a "Notice" to Twentieth Century of the assignment. Such notice to the obligor is not required for an effective assignment, except to defeat a subsequent bona fide payment by the obligor (Williams v. Ingersoll, 89 N.Y. 508, 522; State Factors Corp. v. Sales Factors Corp., 257 App. Div. 101, 103).

The funds accruing to National under its contract with Twentieth Century, however, may be made nonassignable if that agreement in appropriate language so provides. We all agree with the Appellate Division that said contract does so provide and that Allhusen v. Caristo Constr. Corp. (303 N.Y. 446) is controlling here.

A prohibition against assignment, however, may be waived (Devlin v. Mayor of City of N. Y., 63 N.Y. 8, 14; Brewster v. City of Hornellsville, 35 App. Div. 161, 166; Hackett v. Campbell, 10 App. Div. 523, 526, affd. 159 N.Y. 537; [403] see, also, Woollard v. Schaffer Stores Co., 272 N.Y. 304; Gillette Bros. v. Aristocrat Restaurant, 239 N.Y. 87, 89, 90; Murray v. Harway, 56 N.Y. 337, 342, 343; Ireland v. Nichols, 46 N.Y. 413, 416). The very wording of the clause that Twentieth Century "shall not be required to" recognize assignments made without consent and "shall have the right to withhold" payments indicates that the parties contemplated that Twentieth Century might recognize such assignments and thereby waive the anti-assignment clause. Waiver is "the intentional relinquishment of a known right" (Werking v. Amity Estates, 2 N Y 2d 43, 52). As we stated in Alsens Amer. Portland Cement Works v. Degnon Contr. Co. (222 N.Y. 34, 37): "It is essentially a matter of intention. * * * Commonly, it is sought to be proved by various species of proofs and evidence, by declarations, by acts and by non-feasance, permitting differing inferences and which do not directly, unmistakably or unequivocally establish it. Then it is for the jury to determine from the facts as proved or found by them whether or not the intention existed." (See Devlin v. Mayor of City of N. Y., supra; Brewster v. City of Hornellsville, supra.)

As to this issue of waiver, it appears from the papers that National's contract with Twentieth Century forbidding assignments was made in 1951, more than two years prior to the assignments in question; that Twentieth Century examined all the contracts here involved prior to accepting the picture from National in 1953, and consequently knew of the assignments to plaintiffs which it now alleges are a breach of its agreement with National; that, having examined these contracts, Twentieth Century was required by its agreement with National to notify National within 60 days if they were to be treated as a breach of the agreement; that Twentieth Century failed to so notify National; that Twentieth Century accepted the picture and exercised the rights created by the very contract which made the assignments to plaintiffs without notifying either plaintiffs or National of any intention to consider them void; that shortly after the picture was released, and after Chemical Bank refused to act as distributing agent, plaintiffs' attorney spoke about the assignments to Twentieth Century's attorney, who not only evinced no objection at the time, but stated that Twentieth Century would withhold distribution of moneys to National. [404] While of course not decisive, these facts have an important bearing on the issue of waiver.

Rule 113 of the Rules of Civil Practice provides that when an answer is served with a defense, sufficient as a matter of law, founded upon facts established prima facie by documentary evidence, "the complaint may be dismissed on motion unless the plaintiff * * * shall show such facts as may be deemed by the judge hearing the motion, sufficient to raise an issue with respect to the verity and conclusiveness of such documentary evidence". The Judge who heard this motion at Special Term concluded that the question of waiver raised a triable issue; so did two Justices of the Appellate Division; and so do we. To hold that there is a triable issue as to waiver does not, as our dissenting brethren claim, frustrate the plain purpose of the anti-assignment clause, except as the waiver of any contractual provision, clearly recognized by law, frustrates such provision; indeed, to hold as a matter of law that there was no waiver here would sharply depart from our established summary judgment procedure.

To grant summary judgment it must clearly appear that no material and triable issue of fact is presented (Di Menna & Sons v. City of New York, 301 N.Y. 118). This drastic remedy should not be granted where there is any doubt as to the existence of such issues (Braun v. Carey, 280 App. Div. 1019), or where the issue is "arguable" (Barrett v. Jacobs, 255 N.Y. 520, 522); "issue-finding, rather than issue-determination, is the key to the procedure" (Esteve v. Avad, 271 App. Div. 725, 727). In Gravenhorst v. Zimmerman (236 N.Y. 22, 38-39) Chief Judge HISCOCK, writing for this court, observed that one person may argue that as matter of law the assignor abandoned and lost the benefit of his rescission, whereas another might think that was a question of fact, and concluded: "It never could have been, or in justice ought to have been, the intention of those who framed our Practice Act and rules thereunder that the decision of such a serious question as this should be flung off on a motion for summary judgment. Whatever the final judgment may be the defendants were entitled to have the issue deliberately tried and their right to be heard in the usual manner of a trial protected."

Inasmuch as it is our opinion, upon this record, that a triable issue is presented as to the alleged waiver of the anti-assignment [405] clause, the judgment appealed from should be reversed and the order of Special Term reinstated, with costs.

FULD, J. (dissenting).

Save for the issue of waiver, we are all agreed that defendant Twentieth Century-Fox would be entitled to summary judgment dismissing the complaint. On that question, too, I am persuaded, as was the Appellate Division, that no triable issue of fact is presented.

Plaintiffs are a few of a large number of artists and investors embroiled in a controversy with National Pictures Corporation and Berman Swarttz Productions over the distribution of profits from a motion picture released in 1954 and still being exhibited. The controversy is extensive and the disputants numerous. Some 17 other claimants, not parties to this action, have instituted suit in California and, according to the averment of the complaint in that California action, have assigned to the present plaintiffs different percentile shares of the profits than the latter now claim in the complaint before us. At any rate, in view of the inability of the parties to agree on their respective shares and in view of the consequent difficulty of distributing the profits as they are accumulated, at least one bank, the Chemical Bank and Trust Company, has refused to act as distributing agent. Plaintiffs now seek to foist this burden on Twentieth Century-Fox, the firm which distributed the film pursuant to a contract with National, on the theory that National assigned to the plaintiffs part of the payments due to it, in the proportions they claim.

I have no doubt, and, indeed, no one disputes, that it was to prevent entanglement in this very sort of controversy that Twentieth Century-Fox insisted, and explicitly provided in its contract with National, that it would not be "required to recognize or accept any assignments"; that payments would be made only to National and to "no other person"; that no right under the contract would "devolve * * * upon any * * * other person through or as representative of either party"; and that "neither party" would assign the agreement or any part of it "or any rights or monies payable" under it "without the prior written consent of the other". Nevertheless, despite the admitted absence of such consent — though the plaintiffs had ample opportunity to obtain it — and, despite the fact that the plain and only purpose of the anti-assignment provisions would thereby be completely frustrated, plaintiffs urge [406] that Twentieth Century-Fox must submit to the inconvenience, the expense and the uncertainty of a trial solely because it made no protest when it examined the contracts between plaintiffs and National or when it was told by plaintiffs' attorney of the assignments.

Allegations such as these, and they are the only ones made by plaintiffs, do not support the conclusion that a triable issue of fact is presented. That there was no "protest" from the attorneys for Twentieth Century-Fox means nothing. Inquiry, to be meaningful, must go deeper: did that failure reasonably reflect an "intentional relinquishment of a known right"? If it did not, then, there is no basis for either inference or finding of waiver. (Werking v. Amity Estates, 2 N Y 2d 43, 52; Alsens Amer. Portland Cement Works v. Degnon Contr. Co., 222 N.Y. 34, 37.)

Courts are properly hesitant about frustrating contract provisions which prohibit assignment and, accordingly, the rule is settled that "an estoppel or waiver must be established by the person claiming it by a preponderance of evidence, and neither an estoppel nor a waiver * * * can be inferred from mere silence or inaction." (Gibson Elec. Co. v. Liverpool & London & Globe Ins. Co., 159 N.Y. 418, 426-427; see, also, Truglio v. Zurich Gen. Acc. & Liability Ins. Co., 247 N.Y. 423, 427.) And, more to the point, the affirmative acts required to defeat a nonassignment clause by a finding of waiver have invariably been such as are unquestionably inconsistent with anything but recognition of the assignment — as, for instance, making payment to the assignee (see Hackett v. Campbell, 159 N.Y. 537, affg. 10 App. Div. 523, 526; Devlin v. Mayor of City of N. Y., 63 N.Y. 8, 14) allowing the assignee to complete the job (see Brewster v. City of Hornellsville, 35 App. Div. 161, 166) or, in the case of a lease, receiving rents knowing that the assignee is in possession. (See Woollard v. Schaffer Stores Co., 272 N.Y. 304, 312-313; Gillette Bros. v. Aristocrat Restaurant, 239 N.Y. 87, 89-90.)

Indeed, on facts far stronger than those asserted by plaintiffs, the courts have held, as a matter of law, that there was no waiver of the anti-assignment clause. (See, e.g., Allhusen v. Caristo Constr. Corp., 5 Misc 2d 749-750 [per BOTEIN, J.], affd. 278 App. Div. 817, affd. 303 N.Y. 446; Concrete Form Co. v. Grange Constr. Co., 320 Pa. 205; Joint School Dist. v. Marathon County Bank, 187 Wis. 416.) [407] In the Allhusen case (supra, 303 N.Y. 446), for instance, a contractor, the defendant, hired a subcontractor to do some painting work, their contract providing that there was to be no assignment without the contractor's written consent. The subcontractor, nevertheless, made an assignment of amounts due to it as security for a loan, the assignee, a bank, being unaware of the provision against assignment. When the subcontractor later sought to secure a further loan, the bank discussed the assignment with the contractor's general manager. No protest was voiced and no word uttered about the invalidity of an assignment, and, on the strength of that conversation, the bank declared, it made additional loans secured by further assignments. The subcontractor thereafter became insolvent and the contractor, relying on the anti-assignment clause, refused to honor the assignments made to the bank. In the suit thereafter brought by the bank's successor, Special Term granted the contractor's motion for summary judgment dismissing the complaint. The court stressed the fact that there had been no written consent to the assignment and ruled, as a matter of law, that no waiver could be inferred from the circumstance that the contractor had failed to object to the assignment when he had been advised of it. The Appellate Division affirmed (278 App. Div. 817) and so did we (303 N.Y. 446), although by the time the appeal reached us, the plaintiff, recognizing its weakness, had abandoned the argument of waiver.

The rightness of that result is reinforced and confirmed by cases decided in other jurisdictions. On facts even stronger than those in the Allhusen case, the highest courts of both Pennsylvania and Wisconsin have unanimously held, as a matter of law, that there was no waiver. (See Concrete Form Co. v. Grange Constr. Co., supra, 320 Pa. 205; Joint School Dist. v. Marathon County Bank, supra, 187 Wis. 416.) In the Pennsylvania case, which is particularly illuminating, an agreement between a contractor and a subcontractor provided that the latter would not "assign any payments thereunder except by and in accordance with the consent of [the] contractor." Without obtaining the requisite consent, the subcontractor executed an assignment of some of the moneys due it to a bank and the latter immediately notified the contractor by letter of the assignment, requesting an "acknowledgment". The contractor, [408] acknowledging receipt of the letter "concerning an assignment" confirmed the existence of the account, but said nothing about the anti-assignment clause. In reversing the trial court, which had held that the contractor's acknowledgment of the assignment constituted a waiver of the nonassignment provision, the Supreme Court decided that "as a matter of law", there was no waiver (320 Pa. 208-209): "This letter [acknowledging the assignment] did not constitute an unequivocal assent to the assignment. * * * There was no express consent; nor is there sufficient warrant for any implication of the necessary assent. The original contract expressly forbade assignment. By that provision defendant undoubtedly sought to provide against the introduction of one or more third parties * * *. Defendant wished to deal with its subcontractor and with it alone. Any waiver of that provision or consent to its violation would have to be clear, distinct and unequivocal. Such is not the present case. The court below should have ruled as a matter of law that defendant did not consent to the assignment and could not, therefore, be held liable." (Emphasis supplied.)

Turning to the case before us, it is readily apparent that Twentieth Century-Fox also sought "to provide against the introduction of * * * third parties," that it wished, as it stated, to deal with National, and National alone, and that there is no "clear, distinct and unequivocal" evidence of waiver. The Appellate Division was, therefore, eminently correct in holding that there was no basis for any claim of waiver. Let us dwell for a moment on the facts relied upon to spell out waiver. The papers which Twentieth Century-Fox examined, far from making any reference to assignment, actually directed attention to the very agreement between National and Twentieth Century-Fox which, in explicit terms, prohibited assignments.^[1] Moreover, that agreement, with all of its anti-assignment provisions, was actually attached to the contract which Berman Swarttz negotiated with National upon plaintiffs' instructions. And, in addition to that, the Swarttz-National agreement itself provided that it should not be construed as giving any right, legal or equitable, to third persons. In short, therefore, the papers examined, instead of informing Twentieth Century-Fox, as plaintiffs allege, that unless it protested it would be relinquishing [409] the anti-assignment provisions, really reaffirmed the vitality of those provisions. Surely, then, Twentieth Century-Fox's "failure to protest" may not be regarded as evidence of an intention to waive. As earlier indicated, such an intent may only be predicated on action taken on the strength of known facts, and acts, to justify an inference of waiver, must be of an affirmative character, not mere silence or inaction. (See, e.g., Gibson Elec. Co. v. Liverpool & London & Globe Ins. Co., supra, 159 N.Y. 418, 427; Allhusen v. Caristo Constr. Corp., supra, 5 Misc 2d 749, affd. 278 App. Div. 817, affd. 303 N.Y. 446; Emerson Radio & Phonograph Corp. v. Standard Appliances, 201 Misc. 821, 827.)

Nor may any inference of waiver be said to flow from the fact that no objection was raised when, some time later, plaintiffs' attorney, in a conversation with counsel for Twentieth Century-Fox, advised him of the assignments. This is the same sort of inaction that has been held insufficient to establish waiver in precisely this type of case. (See Allhusen v. Caristo Constr. Co., supra, 5 Misc 2d 749, affd. 278 App. Div. 817, affd. 303 N.Y. 446; Concrete Form Co. v. Grange Constr. Co., supra, 320 Pa. 205; Joint School Dist. v. Marathon County Bank, supra, 187 Wis. 416.) It is nowhere alleged that Twentieth Century-Fox or anyone on its behalf expressly waived the nonassignment provisions and, if plaintiffs wanted them waived, their attorney should have requested the requisite consent in writing. Having failed to obtain such consent, plaintiffs should not be permitted to involve Twentieth Century-Fox in a troublesome and expensive trial by simply alleging a waiver, without support (as I have demonstrated) of any fact sufficient in law to substantiate the allegation. To hold otherwise not only frustrates the plain purpose of the anti-assignment provisions but amounts to a decided departure from our wise and established summary judgment procedure.

I would affirm the Appellate Division determination granting summary judgment.

Judgment of the Appellate Division reversed and the order of Special Term reinstated, with costs in this court and in the Appellate Division.

[1] Thus, plaintiffs had expressly authorized Berman Swarttz to arrange for the production of the film "pursuant to" and "under" the contract containing the nonassignment clauses.

128 F.2d 564 (1942)

ROCKMORE
v.
LEHMAN.

No. 227.
Circuit Court of Appeals, Second Circuit.
May 21, 1942.

David Haar, of New York City, for appellant Max Rockmore, trustee.

Abraham Lehman, of Brooklyn, N. Y. (Henry C. Lehman, of Brooklyn, N. Y., of counsel), for appellee Mathilde Lehman.

[565] Jacob M. Zinaman, of New York City, for appellee Joseph S. Abrams of New York City.

Before AUGUSTUS N. HAND, CLARK, and FRANK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

On December 7, 1939, certain creditors of Surf Advertising Corporation filed a petition for a reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. On December 26, Max Rockmore was appointed trustee. Surf had previously entered into three contracts with Calvert Distillers Corporation, whereby Surf was to furnish and maintain advertising signs for Calvert and the latter was to make instalment payments therefor. These contracts were dated May 28, 1937, July 28, 1937, and September 30, 1937, respectively. The contracts were assigned by Surf to the respondent Abrams in consideration of advances by the latter to enable Surf to erect and maintain the signs. Surf performed the contracts with Calvert from the time they were made until October 3, 1939, when Schub, the president of Surf, died. During the periods between the making of the contracts and the death of Schub, Abrams advanced to Surf $38,210.29. Subsequent to October 3, 1939, and prior to the appointment of the trustee, Abrams personally supervised the servicing of the signs under the contracts and expended $846.44 for that purpose. Checks aggregating $31,889.38, which Calvert issued as instalment payments under its contracts with Surf, were delivered by Schub to Abrams, leaving a difference between his total advances of $39,056.73 and his receipts from Surf of $31,889.38 amounting to $7,167.35.

On May 18, 1938, Calvert made a contract for the installation and servicing of an advertising sign with Fiegel Advertising Company Inc. whereby Calvert agreed to pay Fiegel $165 per month for three years, making a total for the period of $5,940. The latter performed all the obligations under the contract prior to the appointment of the trustee. On June 8, 1938, Fiegel made a contract with Mathilde Lehman reciting that it had made the agreement for installing and servicing the sign with Calvert and had acquired a lease of property on which the sign was to be erected. Fiegel promised to erect the sign at a cost of $1,000 and to service the same for three years. Lehman was to advance $1,000 to Fiegel and the latter was to repay the $1,000 in six instalments during the months of July, August, September, October, November and December, 1938, and also to pay $23 per month beginning with July 15, 1938, for the three succeeding years. The agreement between Fiegel and Lehman also provided that, "as security for the payment of the sums" provided to be paid to Lehman, Fiegel assigned all its rights and title both to the lease and to its contract with Calvert. The agreement also provided that Fiegel on receipt of payments from Calvert should forward them, or its own checks for like amounts, to Lehman, or, in the event of failure to do this, Lehman should have the right to receive the payments from Calvert direct. It was further provided that no written notice of the assignment should be given to Calvert, unless a default in the payments had taken place, and that after the repayment of the $1,000 to Lehman had been made Fiegel should be entitled to a re-assignment from Lehman of the lease and the contract upon Lehman's receiving from Fiegel satisfactory security covering the payments to be made for the balance of the term. After Fiegel had made the above assignment to Lehman it assigned its contract with Calvert to Surf. The payments received from Calvert by Fiegel were paid over to Lehman, but $964.52 still remained due under the terms of her agreement with Fiegel.

Calvert deposited $5,960 in the registry of the District Court which represented sums due after October 1, 1939, from Calvert under the various contracts of which Abrams and Lehman held assignments.

Out of the fund of $5,960 the District Court awarded $4,410.16 to Abrams and $964.52 to Lehman. The court awarded the balance amounting to $585.32 to the trustee as reimbursement to him for servicing the various signs. The trustee appealed from the order of distribution in so far as it directed the payments of $4,410.16 to Abrams and $964.52 to Lehman. In his petition he alleged that the assignments to Abrams were fraudulent because the debtor Surf was at the time insolvent and the consideration for the assignments was inadequate and contrary to the Bankruptcy Act and the laws of the State of New York applicable thereto. In respect to the assignment to Lehman of the indebtedness of Calvert to Fiegel it is claimed by the trustee that Fiegel agreed to repay its indebtedness out of a fund to be created in [566] the future through services to be rendered by Fiegel under its contract. The trustee's contention seems to us sound in respect to both the Abrams and the Lehman assignments.

The court below did not determine whether the assignments to Abrams and Lehman were absolute or were only given as security for the advances and evidently thought it unimportant which view was adopted. The special master was of much the same mind as to lack of importance, though he seemed to regard the assignments given to Abrams as absolute rather than as security for the latter's advances. We think they were given both to Abrams and Lehman as security. Abrams filed his proof as one for a "Secured Claim" and therein reserved the right to collect moneys due and to become due under the contracts assigned. Moreover, he testified that the transactions with Surf consisted of "lending * * * money * * *" under assignments. A so-called master contract (Trustee's Exhibit 14) made in 1934 between Surf and Abrams provided in terms for securing advances out of all contracts assigned "and to be assigned."

The following assignment to Abrams of the rights of Surf in the contract between Surf and Calvert dated May 28, 1937, is typical of the other assignments covering the contracts of July 28 and September 30, 1937:

"June 2, 1937. "Abrams & Company, "1140 Broadway, "New York, N. Y. "Gentlemen:

"The undersigned, Surf Adv. Corp. by its President, Samuel Schub, does hereby acknowledge the receipt of the sum of One Thousand Dollars ($1000.00) as evidenced by your check of even date #12664 and in consideration therefore, does hereby sell, assign, transfer and convey unto you Abrams & Co., all right, title and interest in the account of Calvert Distillers Corp., 405 Lexington Ave., N. Y. C., in the total sum of Seventeen Thousand Four Hundred Dollars ($17400.00) covering the service and maintenance of one sign board at W. 8th St., & Boardwalk, Coney Island, Bklyn., N. Y., for a period of three years.

"This said One Thousand Dollars ($1000.00) will be used for immediate requirements to bring this sign into working order on or about June 15, 1937.

"There will be an additional advance of Twelve Hundred and Fifty Dollars ($1250.00) required to complete the work on this bulleting and we will deliver to you invoices, statement and an accounting of all the money disbursed on the One Thousand Dollars ($1000.00) together with the additional advance of Twelve Hundred and Fifty Dollars ($1250.00) which will be required between now and the 15th of June, 1937.

"Very truly yours, "Surf Adv. Corp., "By Samuel L. Schub."

The contract between Calvert and Surf, dated May 28, 1937, contained a provision giving Calvert the right to cancel it on sixty days' notice. The same right of cancellation is applicable to the supplementary contract dated July 28, 1937. The third contract of September 30, 1937, was made subject to cancellation by Calvert on thirty days' notice in writing to Surf. In view of all the circumstances we cannot suppose that Abrams would neglect to save for himself the right to require the repayment of his advances from Surf as the personal obligation of the latter. Because of cancellations, the contracts, out of which the funds to repay the advances by Abrams would normally be realized, might at any time disappear from the picture and no recourse remain to Abrams other than the enforcement of his claim against Surf. Moreover he not only filed his claim as a secured creditor, but Sanders testified before the referee that Abrams declared before the creditors that he "had a lien on the Calvert contracts" and not that he owned them through the purchase and consequent elimination of all the rights of Surf.

For the foregoing reasons we hold that Abrams' rights were those of a secured creditor and that Lehman had similar rights. Indeed the position of Lehman as a secured creditor is even clearer than that of Abrams for her assignment was given as security in express terms. The arrangement in the case of both Abrams and Lehman was for the assignor to turn over all checks received from Calvert in liquidation of the assignees' advances.

It is reasonably clear that under the New York law the assignments and the actual dealings between the parties created no lien good at law against the future instalments which might become [567] payable by Calvert to Surf or Fiegel but at best only created an equitable lien which would arise when the payments became due from Calvert. Such a lien would disappear against an execution creditor or a trustee in bankruptcy who under Section 70, sub. c, of the Act occupies the position of a judgment-creditor armed with an execution. Titusville Iron Co. v. City of New York, 207 N.Y. 203, 209, 100 N.E. 806; Zartman v. First National Bank, 189 N.Y. 267, 82 N.E. 127, 12 L.R.A.,N.S., 1083; MacDonnell v. Buffalo L. T. & S. D. Co., 193 N.Y. 92, 85 N.E. 801; Rochester D. Co. v. Rasey, 142 N.Y. 570, 37 N.E. 632, 40 Am.St.Rep. 635; In re McCrory Stores Corp., 2 Cir., 73 F.2d 270. Cf. In re Barnett, 2 Cir., 124 F.2d 1005, 1008; 44 Yale Law Journal, at p. 641. The decision of the New York Court of Appeals in Foreman v. Louis Jacques Construction Co., 261 N.Y. 429, 185 N.E. 690, is not contrary to the foregoing cases because no execution creditor or trustee in bankruptcy was involved. Likewise the rights of a trustee in bankruptcy were not involved in the case of Stephenson v. Go-Gas Co., 268 N.Y. 372, 378, 197 N.E. 317, or in Hinkle Iron Co. v. Kohn, 229 N.Y. 179, 128 N.E. 113.

We think that the assignments constituted no more than promises to pay the assignees out of funds to be created by the assignor's labor which could not withstand the attack of the trustee in bankruptcy. It is manifest that the distribution of the moneys in question to Abrams or Lehman would result in a preference.

The order of the District Court is reversed and the proceeding is remanded with directions that the sums of $4,410.16 awarded to Abrams and $964.52 awarded to Lehman be paid over by the Clerk to Max Rockmore as trustee in bankruptcy of Surf Advertising Corporation.

CLARK, Circuit Judge (dissenting).

As is the case with so many problems of creditors' rights, New York law is none too clear on the point at issue. But if we take the matter irrespective of statute, I do not believe the decisions require so ancient a theory as that an assignment of definite contract rights, future only in the sense that they are conditioned upon the performance which the promisee has promised, is only a promise to pay out of future funds, and not a present transfer. The New York cases cited, to my mind, are all distinguishable. Some deal with after-acquired property; and some with future accounts receivable. Such cases emphasize the distinction between assignment of rights under an already existing contract and of rights to be created by promises in the future. See Restatement, Contracts, §§ 150, 154, 155, 161. The validity of an assignment of the former kind seems to me upheld by Niles v. Mathusa, 162 N.Y. 546, 57 N.E. 184, holding an assignment of a liquor license as security valid as against a judgment creditor; McNeeley v. Welz, 166 N.Y. 124, 59 N.E. 697, approving Niles v. Mathusa, supra, and distinguishing between assignment of a license and an agreement to assign a renewal; and Bloomer v. Offerman, 247 App.Div. 860, 287 N.Y.S. 133, holding an assignment of a lottery ticket valid against attachment after assignment, but before the lottery drawing. And before the amendment of 1896, requiring filing of assignments of money to become due upon performance of construction contracts, N. Y. Lien Law, Consol.Laws c. 33, § 15, it was well settled that the assignee for security prevailed over subsequent mechanics' lienors. Bates v. Salt Springs Nat. Bank, 157 N.Y. 322, 51 N. E. 1033; Beardsley v. Cook, 143 N.Y. 143, 38 N.E. 109, 62 N.Y.St.Rep. 144; Stevens v. Ogden, 130 N.Y. 182, 29 N.E. 229, 41 N.Y.St.Rep. 331; Lauer v. Dunn, 115 N.Y. 405, 22 N.E. 270, 26 N.Y. St. Rep. 412. Judge Hincks, in a careful and persuasive opinion, also reached the conclusion that an assignment, similar to the one before us, was valid under New York law. In re New York, N. H. & H. R. Co., D.C.Conn., 25 F.Supp. 874. And the cases distinguished in the opinion herewith certainly tend to support validity of the assignments. See, also, Central Trust Co. v. West India Imp. Co., 169 N.Y. 314, 323, 324, 62 N.E. 387.

Furthermore, assignments of moneys to become due under a contract seem in reality more nearly comparable to an assignment of existing book accounts than to a mortgage of after-acquired property. Under Benedict v. Ratner, 268 U.S. 353, 45 S.Ct. 566, 69 L.Ed. 991, such assignments are valid unless the assignor exercises "dominion" over the accounts. See Lee v. State Bank & Trust Co., 2 Cir., 54 F.2d 518, 85 A.L.R. 216, certiorari denied 285 U.S. 547, 52 S.Ct. 395, 76 L.Ed. 938. Certainly there is no evidence before us indicating [568] reservation of "dominion" by the assignor. It also seems to me that the transactions before us better fit the analogy of expectancies, upheld by us in In re Barnett, 2 Cir., 124 F.2d 1005, than the after-acquired property analogy relied on by the court here.

So I believe that, so far as New York non-statutory law is concerned, these assignments, even if for security, would be valid where made long before bankruptcy. But New York public policy in this field is now expressed in many, even diverse, statutes; there is no harder problem for the judge — particularly one admonished as are federal judges merely to utter, not amplify, state law — than to try to make these enactments work together. See Sammet v. Mayer, 2 Cir., 108 F.2d 337, 341, for such problems in general, as well as for the particular statutory question here, arising through two amendments to N. Y. Lien Law, § 230, requiring the recordation of chattel mortgages. A 1916 amendment definitely excepted one-day loans on stocks and bonds. Hence, in Sammet v. Mayer, we held, following the suggestion of Brandeis, J., in Benedict v. Ratner, supra, 268 U.S. at page 362, note, 45 S.Ct. 566, 69 L.Ed. 991, that security transactions in stocks and bonds were within the scope of the statute. A 1921 amendment validated a certain type of security assignment covering specifically "notes or other evidences of indebtedness, or contracts or choses in action." We then declined to decide whether or not this brought all the named interests within the scope of the Lien Law. That question is now presented. Indeed, if reasons of policy support the result reached by my brothers here, they should be found in statutory provisions for recording, rather than in vague deductions going back in essence to antique views of the non-assignability of choses in actions. Cf. M. Witmark & Sons v. Fred Fisher Music Co., 2 Cir., 125 F.2d 949, 953, 954.

No question of the statute was briefed or argued before us. So important a question as to interpretation ought not to be decided, particularly by a federal court, without the utmost light possible and upon a record containing definite findings as to whether these assignments were outright or for security. It may well be that differing results may be reached in the two cases before us. I am ready to return the case to the court below for a more complete record, as well as more extensive investigation of the issue which seems to me controlling. I am not willing now to assign these funds to the trustee upon what seems to me the unreal ground that, even though the parties intended and thought they were assigning rights in an existing contract, they succeeded only in making a promise of a future transfer.

129 F.2d 892 (1942)

ROCKMORE
v.
LEHMAN et al.

No. 227.
Circuit Court of Appeals, Second Circuit.
August 19, 1942.

Jacob M. Zinaman, of New York City, for petitioner Joseph S. Abrams.

Abraham Lehman, of Brooklyn, N. Y. (Henry C. Lehman, of Brooklyn, N. Y., of counsel), for petitioner Mathilde Lehman.

David Haar, of New York City, for Max Rockmore, trustee, opposed.

Effingham Evarts, of New York City (J. Thomas Schneider, of New York City, of counsel), Amici Curiae for Reconstruction Finance Corporation.

Milbank, Tweed & Hope, Davis Polk Wardwell Gardiner & Reed, Larkin, Rathbone & Perry, Shearman & Sterling, and White & Case, all of New York City, Amici Curiae for various banking institutions.

Before AUGUSTUS N. HAND, CLARK, and FRANK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The parties have had full opportunity to present their views upon all phases of this appeal in the briefs filed on the motion for a rehearing. We shall accordingly treat the petition for a rehearing as granted, a rehearing had and proceed to a final disposition of the appeal.

Upon a further examination of the authorities we have become convinced that the majority opinion did not correctly interpret the New York law as applied to loans upon bilateral contracts not completely performed on either side and the view of that law expressed in Judge Clark's dissenting opinion should in general be adopted.

In each of the cases before us, advances were made upon contracts whereby Surf in the first case and Fiegel Advertising Company in the second case were to furnish and maintain advertising signs for Calvert in return for which Calvert bound itself to pay fixed sums over a period of years for the furnishing and maintenance of the signs. The advances were not made upon a mere agreement to assign rights which might arise in the future and did not exist at the time contracts were made, but upon assignments of definite contractual obligations.

We are convinced that the New York Court of Appeals has differentiated assignments of existing contracts by way of pledge from agreements to assign rights that have not yet come into being, even as interests contingent upon counter-performance. The most recent decision is Kniffin v. State, 283 N.Y. 317, 28 N.E.2d 853, where a building contractor assigned his [893] contract with the State of New York to a subcontractor as security for a pre-existing indebtedness, and then became bankrupt. The State made payments under the contract to the assignor, but the assignee was allowed to recover the amount of its claim in spite of the fact that the assignment embraced moneys "to become due" under the contract. See 1 Restatement, Contracts, § 154, sub. 1, Illustration 1; also Judge Hinck's opinion in Re New York N. H. & H. R. Co., D.C.Conn., 25 F.Supp. 874, 877; Central Trust Co. v. West India Importing Co., 169 N.Y. 314, 62 N.E. 387; Arrow Iron Works, Inc., v. Greene, 260 N.Y. 330, 183 N.E. 515.

We cannot agree with appellant's contention that Section 60, sub. a, of the present Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, affects our decision, and that there would be an unlawful preference as to any sums paid or payable after knowledge of insolvency. On the contrary we hold that the date of the assignments governed the imposition of the liens on any sums due from Calvert. This is because the contracts, and not the moneys accruing under them, were the subjects of the assignments. Section 60, sub. a, provides that: "a transfer shall be deemed to have been made at the time when it became so far perfected that no bona-fide purchaser from the debtor and no creditor could thereafter have acquired any rights in the property so transferred superior to the rights of the transferee therein." It has long been the New York law that such an assignment is good against a bona fide purchaser, even though the bona fide purchaser is the first to give notice to the obligor. Fortunato v. Patten, 147 N.Y. 277, 283, 41 N.E. 572; Hooker v. Eagle Bank of Rochester, 30 N.Y. 83, 86 Am.Dec. 351. The same thing is true of an execution creditor or a trustee in bankruptcy. Harris v. Taylor, 35 App.Div. 462, 54 N.Y.S. 864; see for an interpretation of it Sullivan v. Rosson, 223 N.Y. 217, at page 226, 119 N.E. 405, 4 A.L.R. 1400; Conley v. Fine, 181 App.Div. 675, 679, 169 N.Y. S. 162; In re New York, N. H. & H. R. Co., D.C.Conn., 25 F.Supp. 874, 877; Williams v. Ingersoll, 89 N.Y. 508.

Finally the question has been discussed both in the opinion of Judge Clark and in the briefs submitted by the Amici Curiae whether Section 230 of the New York Lien Law required the filing of the assignments of the contracts with Calvert to give them validity as against the trustee in bankruptcy Our decision in In re Bernard & Katz, 2 Cir., 38 F.2d 40, indicates the contrary, as well as our interpretation of Section 230 in New York Trust Co. v. Island Oil and Transport Company, 2 Cir., 33 F.2d 104, 105, 79 A.L.R. 1007. Moreover, it was held in Niles v. Mathusa, 162 N.Y. 546, 57 N.E. 184, decided before the amendment of Section 230 explicitly excepted certain choses in action, that the statute did not require the filing of an assignment of a liquor tax certificate, and we have no reason to suppose that the amendment can be regarded as changing by mere implication the effect of that decision. Section 230 (after the amendment) speaks of "immediate delivery * * * followed by an actual and continued change of possession." Section 232 requires a filing of an assignment in the city or town "where the property mortgaged is at the time of the execution of the mortgage" in cases where the mortgagor is not a resident of the State, and Section 233 requires officers receiving instruments to be filed to enter "a statement of the premises in which the chattels mortgaged are contained." Such language seems inapplicable to assignments of choses in action not embodied in particular instruments such as, for example, stocks and bonds specifically alluded to in the exception to the section and more naturally to be regarded as "chattels." It is particularly hard to think of an "immediate delivery * * * followed by an actual and continued change of possession" of ordinary business contracts in the sense that the words are applied in common parlance to bonds and certificates of stock.

It follows from the foregoing that our former decision in this matter was erroneous and that the decision of the court below in both cases should have been affirmed.

Orders affirmed.

2 N.Y.2d 429 (1957)

In the Matter of City of New York, Judgment-Creditor-Respondent,
v.
Bedford Bar & Grill, Inc., Judgment Debtor. Manufacturers Trust Company, Assignee-Appellant.

Court of Appeals of the State of New York.
Argued November 15, 1956.
Decided March 8, 1957.

Stephen P. Duggan, Jr., Charles J. Colgan and Donald F. Malin, Jr., for appellant.

Peter Campbell Brown, Corporation Counsel (Bernard H. Sherris, Stanley Buchsbaum and Cornelius F. Roche of counsel), for respondent.

DYE, FULD and VAN VOORHIS, JJ., concur with DESMOND, J.; FROESSEL, J., dissents in an opinion in which CONWAY, Ch. J., concurs; BURKE, J., taking no part.

[431] DESMOND, J.

On January 29, 1953 appellant bank made a loan to Bedford Bar & Grill, Inc., and took as security an assignment from Bedford of any refund that might become due to the latter should the liquor store license for which the latter was applying not be granted by the State, or if after grant that license should be surrendered or cancelled. The license was granted. In June, [432] 1953 the bank called Bedford's note because of defaults in payment. A few days later the bank filed its assignment with the State Comptroller. A few days after that Bedford surrendered its license for cancellation by the State Liquor Authority. Then, about a month later appellant city docketed against Bedford (with the effect of docketing a judgment) a warrant for taxes due the city from Bedford. In September, 1953 the city served on the State Comptroller a third-party subpœna in supplementary proceedings (Civ. Prac. Act, § 779, subd. 2) which service created for the city a judgment creditor's lien on Bedford's property in the Comptroller's hands resulting from Bedford's surrender of its license (see Matter of Strand v. Piser, 291 N.Y. 236). The question here is as to priority of lien between appellant and respondent.

On such a question of priority between creditors, we should follow the only previous decisions in this State precisely in point. Those decisions including this present case are nine in number (Alchar Realty Corp. v. Meredith Restaurant, 256 App. Div. 853; Palmer v. Tremaine, 259 App. Div. 951; Atlas Adv. Agency v. Casa Cubana, 259 App. Div. 951; Matter of Frank v. Lutton, 267 App. Div. 703, 707; Matter of Guarino, 285 App. Div. 1161; Schaefer Brewing Co. v. Amsterdam Tavern, 171 Misc. 352; Matter of O'Neill Co. v. Ward, 4 Misc.2d 470; Matter of Mariano v. Cathay House Restaurant, 199 Misc. 410) and were rendered over a period of 16 years. Every one of them holds that an assignment of moneys due from a liquor license cancellation refund, executed before the fund came into existence, is subordinate to the lien of a judgment creditor who has served a third-party subpœna upon the State Comptroller after the surrender of the license. Especially as to such law merchant questions, adherence to the precedents on which businessmen and their lawyers rely is most desirable. Such adherence becomes imperative here when two more reasons for affirmance appear: first, that those decisions are in harmony with general rules, and, second, that several efforts to overrule those decisions by legislation have been unsuccessful.

The undoubted general rule (Zartman v. First Nat. Bank of Waterloo, 189 N.Y. 267; Titusville Iron Co. v. City of New York, 207 N.Y. 203) is that as between a judgment creditor's lien and the equitable lien of an assignee of property subsequently to be acquired, the latter, while his rights will be enforced in equity [433] as against his assignor, has no right at all as against the former. The same rule was applied in Matter of Gruner (295 N.Y. 510) where it was carefully stated that an assignee of the prospective proceeds of the possible sale of a Stock Exchange seat had inchoate rights only until the net proceeds of an actual sale were actually at hand and available (pp. 518, 519), and the Gruner case in its final denouement is direct authority for affirmance here. On the Gruner appeal we held that New York State's income tax lien was subordinate to the equitable lien of the bank assignee but only because the State had never taken any steps at all to enforce its right (supra, pp. 523-525). But later, in response to a motion for reargument, we remanded the Gruner case to the Surrogate's Court to take proof as to what the State had in fact done by way of enforcement effort. In the Surrogate's Court it appeared that the State had filed its claim with the administratrix of the estate before the fund had been collected in by the estate. The Surrogate held, therefore, that the State had priority over the bank assignee (Matter of Gruner, 4 Misc.2d 471). The situations of the State in the Gruner case and of the city in the present case were therefore identical in law, each being equipped with the equivalent of a judgment creditor's lien. Gruner holds that such a judgment lienor has priority over an equitable assignee like the appellant bank here.

This same appellant bank was, in Matter of Capitol Distrs. Corp. v. 2131 Eighth Ave. (1 N.Y.2d 842), given priority over a judgment creditor but the reason for its priority there shows why it should be denied priority in the fundamentally different situation in the present case. In the Capitol Distributors case the assignment was not one of a fund to come into existence in the future, but was of a present interest and for a present consideration; it was not, as here, a refund of a partly used-up license fee but a return to an unsuccessful license applicant of the deposit which he had made as against the issuance of a license applied for but never issued (see Alcoholic Beverage Control Law, § 54, subd. 2; § 63). Since this bank had in the Capitol Distributors case a legal assignment of an existing fund owned by its assignor, it got its priority over later creditors even when the latter were armed with judgment liens. But here appellant had only an inchoate or equitable claim on a yet to be created fund (see Matter of Strand v. Piser, 291 N.Y. 236, supra) and so it must yield priority to judgment lienors.

[434] Finally, as a ground for affirmance we have the legislative history above mentioned. In 1953, 1954 and 1955, bills were introduced into the Legislature to give to bank assignees like appellant here priority over judgment creditors. The 1953 bill passed in one house only. The 1954 and 1955 bills passed both houses but each was vetoed by the Governor. Beyond all question those bills were intended to change the existing law as found by the courts in a series of cases. At the very least, their history shows that all concerned thought the law to be as the courts below have held in the present case (see Holmes Elec. Protective Co. v. City of New York, 304 N.Y. 202, 206, 207). When the bills failed of passage and signature, the law remained unchanged.

The order should be affirmed, with costs.

FROESSEL, J. (dissenting).

The assignment here made to the bank embraced "all monies due or which may become due [to the assignor] from the State Liquor Authority or the Comptroller of the State of New York * * * in the event that a license is not granted * * * or in the event of the surrender * * * cancellation or other release, of the license fee granted to the" assignor. Notwithstanding the several decisions of the Appellate Division cited in the prevailing opinion, we upheld, in Matter of Capitol Distrs. Corp. v. 2131 Eighth Ave. (1 N.Y.2d 842), a determination that the assignee, in a situation virtually identical with the one here involved except that the refund arose out of the disapproval of the license application instead of by way of surrender, was entitled to priority as to such refund where the judgment creditor served its third-party subpœna after the filing of the assignment and after the State Liquor Authority had forwarded a refund order to the Comptroller.

In our judgment, that determination compels the same result in the case before us, and we should follow the decisions in our own court, to which further reference will presently be made. After moneys have once been deposited, they are subject to return to the depositor in the event that the license is not granted, or pro tanto in the event that the license is surrendered. If, therefore, after disapproval of the application on the one hand or surrender of the license on the other, the whole or any part of the moneys is payable to the depositor, there is no reason in law or logic why an assignee who supplied the moneys should not in either case take precedence over subsequent liens of a judgment [435] creditor. In both cases, assignments taken at the time of the loans were filed prior to the critical date, and the subpœnas in supplementary proceedings were filed later. We see no distinction whatever between the possibility of the return of a deposit in case of disapproval and the return of part of a deposit in case of surrender. Either eventuality may or may not happen. There is no more certainty in the one case than in the other. To the extent to which the law allows a licensee to surrender his license for cancellation, the fund to which he is entitled belongs to him whenever he wants it (Alcoholic Beverage Control Law, § 127), just as if it were on deposit anywhere else.

The line of surrender cases in the lower courts, relied on in the prevailing opinion, sought to apply the rule enunciated by this court in Zartman v. First Nat. Bank of Waterloo (189 N.Y. 267) and Titusville Iron Co. v. City of New York (207 N.Y. 203). These two cases held that the equitable lien created by the mortgage or pledge of chattels to be acquired in the future was enforcible between the parties thereto but was void as to creditors. The reason for such a holding was explained in the Zartman case (p. 271) as a desire to protect "general creditors, who are presumed to have dealt with the mortgagor in reliance upon its absolute ownership of the stock on hand * * * who had little, if anything, to rely upon except the shifting stock, which, directly or indirectly, they themselves had furnished", and (p. 273) as to whom the "agreement permitting the mortgagor to sell for his own benefit renders the mortgage fraudulent as matter of law". (See, also, Rochester Distilling Co. v. Rasey, 142 N.Y. 570, as to future crops.)

While this is the rule with regard to the mortgage or pledge of future crops or after-acquired chattels, it is not the general rule, and neither the rule (as to such crops and chattels) nor the reasons therefor have ever been applied by us to the assignment of a fund which is to come into existence out of a present property right, and which fund was advanced by the assignee. We have held, in a wide variety of circumstances, that where the fund is to arise out of an existing relationship between the assignor and the potential source of the fund, such an assignment is valid as against creditors of the assignor who acquire liens after the fund comes into existence (see, e.g., Matter of Gruner, 295 N.Y. 510 [proceeds from the sale of a seat on the Stock Exchange]; Niles v. Mathusa, 162 N.Y. 546 [refund on surrender of liquor tax certificate]; Bates v. Salt Springs Nat. Bank, 157 N.Y. 322 [436] [payments under a building contract]; Fairbanks v. Sargent, 117 N.Y. 320 [proceeds of collection of debt]; Williams v. Ingersoll, 89 N.Y. 508 [recovery in personal injury litigation]; Stover v. Eycleshimer, 3 Keyes 620 [expectancy of an inheritance]; see, also, 2 Williston on Contracts, § 413; 4 Pomeroy on Equity Jurisprudence, §§ 1283, 1291).

In Niles v. Mathusa (supra) we held that the assignee of a liquor tax certificate was entitled to the right to refund thereon over a creditor acquiring a lien by supplementary proceedings subsequent to the assignment. Under the law at that time, the licensing rights of such a certificate, as well as the refund rights, could be assigned; under the Alcoholic Beverage Control Law (§ 114, subds. 2, 3) the license rights cannot today be transferred. However, the assignor continued to use the license rights, keeping the certificate posted in his place of business, and the court treated the transaction as an assignment of a chose in action. The court rejected the argument, which was successfully used in the Zartman case (supra), that the assignor was clothed with apparent ownership and thus the assignee should be estopped from setting up the assignment against creditors. Citing Fairbanks v. Sargent (supra) and Williams v. Ingersoll (supra), the court decided that the creditor was in no different position than a subsequent assignee who would be subordinate to an assignee prior in time.

In Matter of Gruner (supra) we held that where the holder of a seat on the Stock Exchange assigned the proceeds of a future sale of such seat as security for a loan, the assignee was entitled to priority over the tax claims of the State, which had not issued a warrant prior to the time the seat was sold. Chief Judge (then Judge) CONWAY, writing the opinion for the court, stated the rule to be applied to such assignments (p. 525):

"The assignee of a thing in action acquires at once 'an equitable ownership therein, as far as it is possible to predicate property or ownership of such a species of right; * * *' (Pomeroy's Equity Jurisprudence [5th ed.], § 168, p. 221). Where, as in this instance, the chose in action was turned into money and became available in the hands of the exchange for payment to the assignor's administratrix, the equitable lien attached to it immediately and equitable ownership of the fund passed to the trust company, needing but the action of a court of equity to enforce its right [437] to payment. At that moment, the lien of the trust company, which was greater in amount than the proceeds of the sale of the seat, and of all the assets of the estate, became capable of perfection and so was perfected, and the trust company became a secured creditor."

(Emphasis in original.) It is true that after our remand in that case, and upon additional proofs, it developed that the lien of the State had attached on May 27, 1943, whereas the proceeds of the sale of the seat were not available until March, 1944; hence it was properly held on those facts that the lien of the trust company assignee was subordinate to that of the State (Matter of Gruner, 4 Misc.2d 471).

In the case before us, in order to decide priority we must determine the date on which the fund assigned came into existence so as to perfect the bank's equitable interest. If the city acquired its lien after this date, the bank is entitled to priority. The Appellate Division was of the opinion that this was on October 5th, when the State Liquor Authority forwarded the refund order to the Comptroller. In this they were in error.

In Matter of Strand v. Piser (291 N.Y. 236), this court was called upon to determine (p. 238) "when, under section 127 of the Alcoholic Beverage Control Law, a judgment debtor's right to a refund [as the result of surrender] from the State Comptroller comes into existence" (bracketed matter supplied). Rejecting the argument based on one of the surrender cases (Palmer v. Tremaine, 259 App. Div. 951) that this occurred when the State Liquor Authority delivered its certificate of approval to the Comptroller, we held that a judgment creditor who served a third-party subpœna, after the license had been surrendered but before the State Liquor Authority certified its approval, was entitled to priority over creditors who served immediately after the approval of the Authority. In reaching this conclusion, the court determined that, immediately upon the surrender of the license (p. 239), "the Comptroller had in his custody 'property of the judgment debtor * * * or [was] indebted to him'." We said (pp. 240-241):

"We read in the excerpts from section 127, quoted above, an intention by the Legislature to declare a refund ‘due’ on the date when the license is surrendered for cancellation. Accordingly in the present case the refund became due on * * * [the date of surrender], and created on that date in favor of the judgment debtor an obligation whereby the Comptroller, a third party, [438] became ‘indebted’ to the judgment debtor * * *. Although section 127 of the Alcoholic Beverage Control Law directs that payment of the refund be deferred for a period of thirty days, an obligation impressed upon the Comptroller by the statute remained and was sufficient to make the third party subpœna, served upon the Comptroller * * *, legally effective as a basis for determining the priority of the right asserted by the appellant creditor to the refund."

The bank's equitable interest in the instant case, accordingly, was perfected on July 8th when the license was surrendered and the refund became "due" to Bedford, only one day intervening between that date and the day the Comptroller acknowledged receipt of the assignment. The tax claim of the city first became a judgment on August 13th when its warrant was docketed. Its third-party subpœna based on that judgment was served on the Comptroller on September 24th. Both of these events were subsequent to the date of surrender as well as the 30-day period thereafter, during which the State Liquor Authority might still cancel the license because of a possible previous violation of the Alcoholic Beverage Control Law and forfeit the refund (Alcoholic Beverage Control Law, § 127, subd. 1). Refund after the surrender date, and in an event after this 30-day period, is a purely ministerial act. Of course the Comptroller may make certain deductions for State taxes, but this does not delay the date on which the fund comes into existence, for he can only do this on the theory that the fund already belongs to the licensee and is no longer part of the general license fee fund in his custody. Consequently, the bank, by virtue of its assignment which was perfected prior to the date on which the city perfected its lien, is entitled to priority in the satisfaction of its claim out of the moneys held by the Comptroller to the credit of Bedford.

The city also argues that the veto by the Governor (without memorandum) of two bills which were passed by the Legislature to amend section 127 of the Alcoholic Beverage Control Law in order to effect the result recommended here (Assem. Int. No. 1905, Pr. No. 1976, 1954 Sess.; Sen. Int. 1477, Pr. No. 1566, 1954 Sess.; Assem. Int. No. 1283, Pr. No. 1299, 1955 Sess.; Sen. Int. 892, Pr. No. 919, 1955 Sess.), is of significance "that the law makers have rejected such a change". Aside from the fact that this was not an example of the refusal by the Legislature to act, but quite the contrary — it did so act — such refusal, if any [439] there were, would only be relevant where the interpretation of the legislation sought to be amended is at issue, as in the cases cited by the city. Here we are concerned with the effect of an assignment, a question with which section 127 of the Alcoholic Beverage Control Law never attempted to deal. It may well be argued that the reason why our lawmakers enacted the proposed legislation was because they wished to nullify the effect of the surrender decisions in the third department, none of which had been appealed to our court, and thus conform to the law as laid down by us in kindred situations.

Accordingly, the orders of the Appellate Division and Special Term should be reversed, the motion of the City of New York denied, the cross motion of Manufacturers Trust Company granted, and the Comptroller of the State of New York directed to pay to Manufacturers Trust Company the sum of $658 to the credit of the judgment debtor herein, with costs.

Order affirmed.

10 N.Y.2d 313 (1961)

Marianne Z. Speelman, Respondent,
v.
Valerie Pascal, as Administratrix with the Will Annexed of The Estate of Gabriel Pascal, Deceased, Appellant.

Court of Appeals of the State of New York.
Argued October 4, 1961.
Decided November 16, 1961.

Frank Delaney for appellant.

Frederick R. Adler, Martin D. Jacobs and Leonard M. Leiman for respondent.

Judges DYE, FULD, FROESSEL, VAN VOORHIS, BURKE and FOSTER concur.

[316] Chief Judge DESMOND.

Gabriel Pascal, defendant's intestate who died in 1954, had been for many years a theatrical producer. In 1952 an English corporation named Gabriel Pascal Enterprises, Ltd., of whose 100 shares Gabriel Pascal owned 98, made an agreement with the English Public Trustee who represented the estate of George Bernard Shaw. This agreement granted to Gabriel Pascal Enterprises, Ltd., the exclusive world rights to prepare and produce a musical play to be based on Shaw's play "Pygmalion" and a motion picture version of the musical play. The agreement recited, as was the fact, that the licensee owned a film scenario written by Pascal and based on "Pygmalion". In fact Pascal had, some time previously, produced a nonmusical movie version of "Pygmalion" under rights obtained by Pascal from George Bernard Shaw during the latter's lifetime. The 1952 agreement required the licensee corporation to pay the Shaw estate an initial advance and thereafter to pay the Shaw estate 3% of the gross receipts of the musical play and musical movie with a provision that the license was to terminate if within certain fixed periods the licensee did not arrange with Lerner and Loewe or other similarly well-known composers to write the musical play and arrange to produce it. Before Pascal's death in July, 1954, he had made a number of unsuccessful efforts to get the musical written and produced and it was not until after his death that arrangements were made, through a New York bank as temporary administrator of his estate, for the writing and production of the highly successful "My Fair Lady". Meanwhile, on February 22, 1954, at a time when the license from the Shaw estate still had two years to run, Gabriel Pascal, who died four and a half months later, wrote, signed and delivered to plaintiff a document as follows:

"Dear Miss Kingman

This is to confirm to you our understanding that I give you from my shares of profits of the Pygmalion Musical stage version five per cent (5%) in England, and two per cent (2%) of my shares of profits in the United States. From the film version, five per cent (5%) from my profit shares all over the world.

[317] As soon as the contracts are signed, I will send a copy of this letter to my lawyer, Edwin Davies, in London, and he will confirm to you this arrangement in a legal form.

This participation in my shares of profits is a present to you, in recognition for your loyal work for me as my Executive Secretary.

Very sincerely yours, Gabriel Pascal."

The question in this lawsuit is: Did the delivery of this paper constitute a valid, complete, present gift to plaintiff by way of assignment of a share in future royalties when and if collected from the exhibition of the musical stage version and film version of "Pygmalion"? A consideration was, of course, unnecessary (Personal Property Law, § 33, subd. 4).

In pertinent parts the judgment appealed from declares that plaintiff is entitled to receive the percentages set out in the 1954 agreement, requires defendant to render plaintiff accountings from time to time of all moneys received from the musical play and the film version, and orders defendant to make the payments required by the agreement. The basic grant from the Shaw estate was to Gabriel Pascal Enterprises, Ltd., a corporation, whereas the document on which plaintiff sues is signed by Gabriel Pascal individually and defendant makes much of this, arguing that Gabriel Pascal, as distinguished from his corporation, owned no rights when he delivered the 1954 document to plaintiff. However, no such point was made in the courts below and no mention of it is made in the motion papers, affidavits, etc., on which plaintiff was granted summary judgment. It is apparent that all concerned in these transactions disregarded any distinction between Pascal's corporation in which he owned practically all the stock, and Pascal individually, as is demonstrated by the agreement between Lerner-Loewe-Levin, writers and producers of "My Fair Lady", and Gabriel Pascal's estate. Actually, all this makes little difference since what Pascal assigned to plaintiff was a percentage from Pascal's "shares of profits" and this would cover direct collections or collections through his corporation.

Defendant emphasizes also the use of the word "profits" in the February, 1954 letter from Pascal to plaintiff, and suggests [318] that this means that plaintiff was not to get a percentage of Pascal's gross royalties but a percentage of some "profits" remaining after deduction of expenses. Again, the answer is that no such point was made in the proceedings below or in this record and everyone apparently assumed, at least until the case reached this court, that what the defendant Pascal estate will get from the musical play and movie is royalties collectible in full under the agreements pursuant to which "My Fair Lady" has been and will be produced. In this same connection defendant talks of possible creditors of the Pascal corporation and inquires as to what provision would be made for them if plaintiff were to get her percentages of the full royalties. This, too, is an afterthought and no such matter was litigated below.

The only real question is as to whether the 1954 letter above quoted operated to transfer to plaintiff an enforcible right to the described percentages of the royalties to accrue to Pascal on the production of a stage or film version of a musical play based on "Pygmalion". We see no reason why this letter does not have that effect. It is true that at the time of the delivery of the letter there was no musical stage or film play in existence but Pascal, who owned and was conducting negotiations to realize on the stage and film rights, could grant to another a share of the moneys to accrue from the use of those rights by others. There are many instances of courts enforcing assignments of rights to sums which were expected thereafter to become due to the assignor. A typical case is Field v. Mayor of New York (6 N.Y. 179). One Bell, who had done much printing and similar work for the City of New York but had no present contract to do any more such work, gave an assignment in the amount of $1,500 of any moneys that might thereafter become due to Bell for such work. Bell did obtain such contracts or orders from the city and money became due to him therefor. This court held that while there was not at the time of the assignment any presently enforcible or even existing chose in action but merely a possibility that there would be such a chose of action, nevertheless there was a possibility of such which the parties expected to ripen into reality and which did afterwards ripen into reality and that, therefore, the assignment created an equitable title which the courts would enforce. A case similar to the present one in general outline is Central Trust Co. v. West India Improvement Co. (169 N.Y. 314) [319] where the assignor had a right or concession from the Colony of Jamaica to build a railroad on that island and the courts upheld a mortgage given by the concession owner on any property that would be acquired by the concession owner in consideration of building the railroad if and when the railroad should be built. The Court of Appeals pointed out in Central Trust Co., at page 323, that the property as to which the mortgage was given had not yet come into existence at the time of the giving of the mortgage but that there was an expectation that such property, consisting of securities, would come into existence and accrue to the concession holder when and if the latter performed the underlying contract. This court held that the assignment would be recognized and enforced in equity. The cases cited by appellant (Young v. Young, 80 N.Y. 422; Vincent v. Rix, 248 N.Y. 76; Farmers' Loan & Trust Co. v. Winthrop, 207 App. Div. 356, mod. 238 N.Y. 477) are not to the contrary. In each of those instances the attempted gifts failed because there had not been such a completed and irrevocable delivery of the subject matter of the gift as to put the gift beyond cancellation by the donor. In every such case the question must be as to whether there was a completed delivery of a kind appropriate to the subject property. Ordinarily, if the property consists of existing stock certificates or corporate bonds, as in the Young and Vincent cases (supra), there must be a completed physical transfer of the stock certificates or bonds. In Farmers' Loan & Trust Co. v. Winthrop (supra) the dispute was as to the effect of a power of attorney but the maker of the power had used language which could not be construed as effectuating a present gift of the property which the donor expected to receive in the future from another estate. The Farmers' Loan & Trust Co. case does not hold that property to be the subject of a valid gift must be in present physical existence and in the possession of the donor but it does hold that the language used in the particular document was not sufficient to show an irrevocable present intention to turn over to the donee securities which would come to the donor on the settlement of another estate. At page 485 of 238 New York this court held that all that need be established is "an intention that the title of the donor shall be presently divested and presently transferred" but that in the particular [320] document under scrutiny in the Farmers' Loan & Trust Co. case there was lacking any language to show an irrevocable intent of a gift to become operative at once. In our present case there was nothing left for Pascal to do in order to make an irrevocable transfer to plaintiff of part of Pascal's right to receive royalties from the productions.

The rules as to the requisites for completed gifts have recently been restated by us in Matter of Szabo (10 N.Y.2d 94, 98).

The Beaver v. Beaver (117 N.Y. 421) and Matter of Van Alstyne (207 N.Y. 298) cases relied on by defendant deal with the transfer of tangible physical property and are not helpful here. In Young v. Young (80 N.Y. 422, supra) and Vincent v. Rix (248 N.Y. 76, supra), similarly cited by defendant, there was neither a physical delivery nor delivery of a writing.

The judgment should be affirmed, with costs.

Judgment affirmed.

250 N. Y. 159
JOHN A. LANGEL, Respondent,
v.
ISIDOR BETZ, Appellant.
(Argued December 7, 1928; decided December 31, 1928.) 

[159] JOHN A. LANGEL, Respondent, v. ISIDOR BETZ, Appellant.

Langel v. Betz, 224 App. Div. 266, reversed.

(Argued December 7, 1928; decided December 31, 1928.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered July 24, 1928, unanimously affirming a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term.

Abraham L. Pomerantz for appellant. A vendor cannot enforce specific performance against the assignee of a vendee, irrespective of what acts are done by the assignee under the contract, short of a novation or an express assumption of the obligations of the contract by the assignee. (Lisenby v. Newton, 120 Cal. 571; Mound Valley Vitrified Brick Co. v. Mound Valley National Gas & Oil Co., 258 Fed. Rep. 936; Williams v. McWhorter, 218 Pac. Rep. 791; Comstock v. Hitt, 37 Ill. 542; Wilson v. Beazley, 186 Cal. 437; Corbus v. Teed, 69 Ill. 205; Gross v. Thomson's Estate, 286 Ill. 185; Cameron Steam Pump Works v. Lubbock Light & Ice Co., 167 S. W. Rep. 256; Smith v. Kellog, 46 Vt. 560; Hugel v. Habel, 132 App. Div. 327.) Neither in logic nor in principle can the holding of the court below be sustained. (Epstein v. Gluckin, 179 N. Y. Supp. 221.)

Harry Gittelson for respondent. Defendant's requests to adjourn closing of title are tantamount to a demand for performance, and consequently he assumed the obligations [161] of the vendee. (Epstein v. Gluckin, 233 N. Y. 490; Merchants' Bank v. Thomson, 55 N. Y. 7; Page v. McDonald, 55 N. Y. 299; Bay v. Hunt, 112 N. Y. 191; H. & H. Corp. v. Broad Holding Corp., 204 App. Div. 669.)

POUND, J. Plaintiff, on August 1st, 1925, made a contract with Irving W. Hurwitz and Samuel Hollander for the sale of certain real property. This contract the vendees assigned to Benedict, who in turn assigned it to Isidor Betz, the defendant herein. The assignment contains no delegation to the assignee of the performance of the assignor's duties. The date for performance of the contract was originally set for October 2d, 1925. This was extended to October 15th, 1925, at the request of the defendant, the last assignee of the vendees. The ground upon which the adjournment was asked for by defendant was that the title company had not completed its search and report on the title to the property. Upon the adjourned date the defendant refused to perform. The vendor plaintiff was ready, able and willing to do so, and was present at the place specified with a deed, ready to tender it to the defendant who did not appear.

The plaintiff as vendor brought this action against the defendant assignee for specific performance of the contract. Upon the foregoing undisputed facts he has had judgment therefor.

The question is: " Can the vendor obtain specific performance of a contract for the sale of real estate against the assignee of the vendee, where the assignee merely requests and obtains an extension of time within which to close title? "

Here we have no novation, no express assumption of the obligations of the assignor in the assignment and no demand for performance by the assignee.

The mere assignment of a bilateral executory contract [162] may not be interpreted as a promise by the assignee to the assignor to assume the performance of the assignor's duties, so as to have the effect of creating a new liability on the part of the assignee to the other party to the contract assigned. The assignee of the vendee is under no personal engagement to the vendor where there is no privity between them. (Champion v. Brown, 6 Johns. Ch. 398; Anderson v. N. Y. & H. R. R. Co., 132 App. Div. 183, 187, 188; Hugel v. Habel, 132 App. Div. 327, 328.) The assignee may, however, expressly or impliedly, bind himself to perform the assignor's duties. This he may do by contract with the assignor or with the other party to the contract. It has been held (Epstein v. Gluckin, 233 N. Y. 490) that where the assignee of the vendee invokes the aid of a court of equity in an action for specific performance, he impliedly binds himself to perform on his part and subjects himself to the conditions of the judgment appropriate thereto. " He who seeks equity must do equity." The converse of the proposition, that the assignee of the vendee would be bound when the vendor began the action, did not follow from the decision in that case. On the contrary, the question was wholly one of remedy rather than right and it was held that mutuality of remedy is important only so far as its presence is essential to the attainment of the ends of justice. This holding was necessary to sustain the decision. No change was made in the law of contracts nor in the rule for the interpretation of an assignment of a contract.

A judgment requiring the assignee of the vendee to perform at the suit of the vendor would operate as the imposition of a new liability on the assignee which would be an act of oppression and injustice, unless the assignee had, expressly or by implication, entered into a personal and binding contract with the assignor or with the vendor to assume the obligations of the assignor.

It has been urged that the probable intention of the [163] assignee is ordinarily to assume duties as Well as rights and that the contract should be so interpreted in the absence of circumstances showing a contrary intention. (The American Law Institute's Restatement of the Law of Contracts (§ 164) proposes a change in the rule of interpretation of assigned contracts to give as full effect to the assumed probable intention of the parties as the law permits. The following statement is proposed:

"Section 164. Interpretation of Words Purporting to Assign a Bilateral Contract and Effect of Acceptance of the Assignment by the Assignee.

"(1) Where a party to a bilateral contract which is at the time wholly or partially executory on both sides, purports to assign the whole contract, his action is interpreted, in the absence of circumstances showing a contrary intention, as an assignment of the assignor's rights under the contract and a delegation of the performance of the assignor's duties.

"(2) Acceptance by the assignee of such an assignment is interpreted, in the absence of circumstances showing a contrary intention, as both an assent to become an assignee of the assignor's rights and as a promise to the assignor to assume the performance of the assignor's duties."

This promise to the assignor would then be available to the other party to the contract. (Lawrence v. Fox, 20 N. Y. 268; 1 Williston on Contracts, § 412.) The proposed change is a complete reversal of our present rule of interpretation as to the probable intention of the parties. It is, perhaps, more in harmony with modern ideas of contractual relations than is " the archaic view of a contract as creating a strictly personal obligation between the creditor and debtor " (Pollock on Contracts [9th ed.], 232), which prohibited the assignee from suing at law in his own name and which denied a remedy to third party beneficiaries. " The fountains out of which these resolutions issue" have been broken up if not [164] destroyed (Seaver v. Ransom, 224 N. Y. 233, 237), but the law remains that no promise of the assignee to assume the assignor's duties is to be inferred from the acceptance of an assignment of a bilateral contract, in the absence of circumstances surrounding the assignment itself which indicate a contrary intention.

With this requirement of the interpretation of the intention of the parties controlling, we must turn from the assignment to the dealings between the plaintiff and the defendant to discover whether the defendant entered into relations with the plaintiff whereby he assumed the duty of performance. The assignment did not bring the parties together and the request for a postponement differs materially from the commencement of an action in a court of equity, whereby the plaintiff submits himself to the jurisdiction of the court or from a contractual assumption of the obligations of the assignor. If the substance of the transaction between the vendor and the assignee of the vendee could be regarded as a request on the part of the latter for a postponement of the closing day and a promise on his part to assume the obligations of the vendee if the request were granted, a contractual relation arising from an expression of mutual assent, based on the exchange of a promise for an act, might be spelled out of it; but the transaction is at least as consistent with a request for time for deliberation as to the course of conduct to be pursued as with an implied promise to assume the assignor's duties if the request were granted. The relation of promisor and promisee was not thereby expressly established and such relation is not a necessary inference from the nature of the transaction. When we depart from the field of intention and enter the field of contract, we find no contractual liability; no assumption of duties based on a consideration.

Plaintiff contends that the request for an adjournment should be construed (time not being the essence of the contract) as an assertion of a right to such adjournment, [165] and, therefore, as a binding act of enforcement, whereby defendant accepted the obligations of the assignee. Here again we have an equivocal act. There was no demand for an adjournment as a matter of right. The request may have been made without any intent to assert a right. It cannot be said that by that act alone the assignee assumed the duty of performance.

Furthermore, no controlling authority may be found which holds that a mere demand for performance by the vendee's assignee creates a right in the complaining vendor to enforce the contract against him. (H. & H. Corp. v. Broad Holding Corp., 204 App. Div. 569. See 8 Cornell Law Quarterly, 374; 37 Harvard Law Review, 162.) That question may be reserved until an answer is necessary.

The judgment of the Appellate Division and that of the Special Term should be reversed and the complaint dismissed, with costs in all courts.

CARDOZO, Ch. J., CRANE, ANDREWS, LEHMAN, KELLOGG and O'BRIEN, JJ., concur.

Judgments reversed, etc.

123 Mass. 28
BOSTON  ICE COMPANY
vs.
EDWARD POTTER
Suffolk.
April 4.—June 28, 1877.

A., who had bought ice of B., ceased to take it on account of dissatisfaction with B., and contracted for ice with C. Subsequently B. bought C.'s business and delivered ice to A., without notifying him of his purchase until the delivery and consumption of the ice. Held, that B. could not maintain an action for the price of the ice against A.

CONTRACT on an account annexed, for ice sold and delivered between April 1, 1874, and April 1, 1875. Answer, a general denial.

At the trial in the Superior Court, before Wilkinson, J., without a jury, the plaintiff offered evidence tending to show the delivery of the ice and its acceptance and use by the defendant from April 1, 1874, to April 1, 1875, and that the price claimed in the declaration was the market price. It appeared that the ice was delivered and used at the defendant’s residence in Boston, and the amount left daily was regulated by the orders received there from the defendant’s servants; that the defendant, 11 1873, was supplied with ice by the plaintiff, but, on account of some dissatisfaction with the manner of supply, terminated his contract with it; that the defendant then made a contract with the Citizens’ Ice Company to furnish him with ice; that some time before April, 1874, the Citizens’ Ice Company sold its business to the plaintiff, with the privilege of supplying ice to its customers. There was some evidence tending to show that the plaintiff gave notice of this change of business to the [29] defendant and informed him of its intended supply of ice to him; but this was contradicted on the part of the defendant.

The judge found that the defendant received no notice from the plaintiff until after all the ice had been delivered by it, and that there was no contract of sale between the parties to this action except what was to be implied from the delivery of the ice by the plaintiff to the defendant and its use by him; and ruled that the defendant had a right to assume that the ice in question was delivered by the Citizens’ Ice Company, and that the plaintiff could not maintain this action. The plaintiff alleged exceptions.

J. P. Farley, Jr., for the plaintiff.

E. C. Bumpus & E. M. Johnson, for the defendant.

ENDICOTT, J. To entitle the plaintiff to recover, it must show some contract with the defendant. There was no express contract, and upon the facts stated no contract is to be implied. The defendant had taken ice from the plaintiff in 1873, but, on account of some dissatisfaction with the manner of supply, he terminated his contract, and made a contract for his supply with the Citizens’ Ice Company. The afterward delivered ice to the defendant for one year without notifying the defendant, as the presiding judge has found, that it had bought out the business of the Citizens’ Ice Company, until after the delivery and consumption of the ice.

The presiding judge has decided that the defendant had a right to assume that the ice in question was delivered by the Citizens' Ice Company, and has thereby necessarily found that the defendant’s contract with that company covered the time of the delivery of the ice.

There was no privity of contract established between the plaintiff and defendant, and without such privity the possession and use of the property will not support an implied assumpsit. Hills v. Snell, 104 Mass. 173, 177. And no presumption of assent can be implied from the reception and use of the ice, because the defendant had no knowledge that it was furnished by the plaintiff, but supposed that he received it under the contract made with the Citizens’ Ice Company. Of this change he was entitled to be informed.

[30] A party has a right to select and determine with whom he will contract, and cannot have another person thrust upon him without his consent. It may be of importance to him who performs the contract, as when he contracts with another to paint a picture, or write a book, or furnish articles of a particular kind, or when he relies upon the character or qualities of an individual, or has, as in this case, reasons why he does not wish to deal with a particular party. In all these cases, as he may contract with whom he pleases, the sufficiency of his reasons for so doing cannot be inquired into. If the defendant, before receiving the ice, or during its delivery, had received notice of the change, and that the Citizens’ Ice Company could no longer perform its contract with him, it would then have been his undoubted right to have rescinded the contract and to decline to have it executed by the plaintiff. But this he was unable to do, because the plaintiff failed to inform him of that which he had a right to know. Orcutt v. Nelson, 1 Gray, 536, 542. Winchester v. Howard, 97 Mass. 303. Hardman v. Booth, 1 H. C. 803. Humble v. Hunter, 12 Q. B. 310. Robson v. Drummond, 2 B. & Ad. 303. If he had received notice and continued to take the ice as delivered, a contract would be implied. Mudge v. Oliver, 1 Allen, 74. Orcutt v. Nelson, ubi supra. Mitchell v. Lapage, Holt N. P. 253.

There are two English cases very similar to the case at bar. In Schmaling v. Thomlinson, 6 Taunt. 147, a. firm was employed by the defendants to transport goods to a foreign market, and transferred the entire employment to the plaintiff, who performed it without the privity of the defendants, and it was held that he could not recover compensation for his services from the defendants.

The case of Boulton v. Jones, 2 H. & N. 564, was cited by both parties at the argument. There the defendant, who had been in the habit of dealing with one Brocklehurst, sent a written order to him for goods. The plaintiff, who had on the same day bought out the business of Brocklehurst, executed the order without giving the defendant notice the goods were supplied by him and not by Brocklehurst. And it was held that the plaintiff could not maintain an action for the price of the goods against the defendant. It is said in that case that the [31] defendant had a right of set-off against Brocklehurst, with whom he had a running account, and that is alluded to in the opinion of Baron Bramwell, though the other judges do not mention it.

The fact that a defendant in a particular case has a claim in set-off against the original contracting party shows clearly the injustice of forcing another person upon him to execute the contract without his consent, against whom his would not be available. But the actual existence of the claim in set-off cannot be a test to determine that there is no implied assumpsit or privity between the parties. Nor can the non-existence of a set-off raise an implied assumpsit. If there is such a set-off it is sufficient to state that, as a reason why the defendant should prevail; but it by no means follows that because it does not exist the plaintiff can maintain his action. The right to maintain an action can never depend upon whether the defendant has or has not a defence to it.

The implied assumpsit arises upon the dealings between the parties to the action, and cannot arise upon the dealings between the defendant and the original contractor, to which the plaintiff was not a party. At the same time, the fact that the right of set-off against the original contractor could not, under any circumstances, be availed of in an action brought upon the contract by the person to whom it was transferred and who executed it, shows that there is no privity between the parties in regard to the subject matter of this action.

It is, therefore, immaterial that the defendant had no claim in set-off against the Citizens’ Ice Company.

We are not called upon to determine what other remedy the plaintiff has, or what would be the rights of the parties if the ice were now in existence. Exceptions overruled.

5 Q.B.D. 149

THE BRITISH WAGGON COMPANY AND THE PARKGATE WAGGON COMPANY
v.
LEA & CO.

Company—Voluntary Winding-up—Assignee of Company—Contract, how far Personal—Agreement to Repair—Companies Act, 1862, ss. 95, 131.

The plaintiffs, a waggon company, by agreement in writing let the defendants a number of railway waggons for a term of years at an annual rent, the agreement providing that the plaintiffs, their executors or administrators, should during the term keep the waggons in repair. Pending the agreement an order was made for the winding-up of the plaintiff company under the supervision of the Court, in pursuance of a resolution previously passed by the company, and liquidators were appointed, who joined the company in assigning the benefit of the contract to another company, upon the terms that such company should perform the stipulations by the assignors contained in the original contrac. The assignees took over the repairing stations of the plaintiffs and the staff of workmen employed by them, and were always ready and willing to execute all necessary repairs to the waggons:—

Held, that the defendants had no defence to an action for rent, upon the ground that the plaintiffs had incapacitated themselves from performing their contract; for, first, the voluntary liquidation of the company was immaterial, the liquidators having power under the Companies Act, 1862, ss. 95, 131, to continue the letting of the waggons; and, secondly, the repair of the waggons by the company to whom the contract was assigned was a sufficient performance by the plaintiffs of their agreement to repair.

SPECIAL CASE, the material part of which is stated in the judgment of the Court.

Nov. 25. A. Wills, Q.C. (Forbes and Lofthouse, with him), for the plaintiffs, in addition to the cases mentioned in the judgment, referred to Lindley on Partnership, 4th ed. vol. 2, 1314.

A. L. Smith (A. Kingdon, with him), for the defendants.

A. Wills, Q.C., in reply.

Cur. adv. vult.

1880. Jan. 13. The judgment of the Court (Cockburn, C.J., and Manisty, J.) was delivered by

COCKBURN, C.J. This was an action brought by the plaintiffs to recover rent for the hire of certain railway waggons, alleged to be payable by the defendants to the plaintiffs, or one of them, under the following circumstances:—

By an agreement in writing of the 10th of February, 1874, the [150] Parkgate Waggon Company let to the defendants, who are coal merchants, fifty railway waggons for a term of seven years, at a yearly rent of £600 a year, payable by equal quarterly payments. By a second agreement of the 13th of June, 1874, the company in like manner let to the defendants fifty other waggons, at a yearly rent of £625, payable quarterly like the former.

Each of these agreements contained the following clause:

"The owners, their executors, or administrators, will at all times during the said term, except as herein provided, keep the said waggons in good and substantial repair and working order, and, on receiving notice from the tenant of any want of repairs, and the number or numbers of the waggons requiring to be repaired, and the place or places where it or they then is or are, will, with all reasonable despatch, cause the same to be repaired and put into good working order."

On the 24th of October, 1874, the Parkgate Company passed a resolution, under the 129th section of the Companies Act, 1862, for the voluntary winding up of the company. Liquidators were appointed, and by an order of the Chancery Division of the High Court of Justice, it was ordered that the winding-up of the company should be continued under the supervision of the Court.

By an indenture of the 1st of April, 1878, the Parkgate Company assigned and transferred, and the liquidators confirmed to the British Company and their assigns, among other things, all sums of money, whether payable by way of rent, hire, interest, penalty, or damage, then due, or thereafter to become due, to the Parkgate Company, by virtue of the two contracts with the defendants, together with the benefit of the two contracts, and all the interest of the Parkgate Company and the said liquidators therein; the British Company, on the other hand covenanting with the Parkgate Company "to observe and perform such of the stipulations, conditions, provisions, and agreements contained in the said contracts as, according to the terms thereof were stipulated to be observed and performed by the Parkgate Company." On the execution of this assignment the British Company took over from the Parkgate Company the repairing stations, which had [151] previously been used by the Parkgate Company for the repair of the waggons let to the defendants, and also the staff of workmen employed by the latter company in executing such repairs. It is expressly found that the British Company have ever since been ready and willing to execute, and have, with all due diligence, executed all necessary repairs to the said waggons. This, however, they have done under a special agreement come to between the parties since the present dispute has arisen, without prejudice to their respective rights.

In this state of things the defendants asserted their right to treat the contract as at an end, on the ground that the Parkgate Company had incapacitated themselves from performing the contract, first, by going into voluntary liquidation, secondly, by assigning the contracts, and giving up the repairing stations to the British Company, between whom and the defendants there was no privity of contract, and whose services, in substitution for those to be performed by the Parkgate Company under the contract, they the defendants were not bound to accept. The Parkgate Company not acquiescing in this view, it was agreed that the facts should be stated in a special case for the opinion of this Court, the use of the waggons by the defendants being in the meanwhile continued at a rate agreed on between the parties, without prejudice to either, with reference to their respective rights.

The first ground taken by the defendants is in our opinion altogether untenable in the present state of things, whatever it may be when the affairs of the company shall have been wound up, and the company itself shall have been dissolved under the 111th section of the Act. Pending the winding-up, the company is by the effect of ss. 95 and 131 kept alive, the liquidator having power to carry on the business, "so far as may be necessary for the beneficial winding-up of the company," which the continued letting of these waggons, and the receipt of the rent payable in respect of them, would, we presume, be.

What would be the position of the parties on the dissolution of the company it is unnecessary for the present purpose to consider?

The main contention on the part of the defendants, however, [152] was that, as the Parkgate Company had, by assigning the contracts, and by making over their repairing stations to the British Company, incapacitated themselves to fulfil their obligation to keep the waggons in repair, that company had no right, as between themselves and the defendants, to substitute a third party to do the work they had engaged to perform, nor were the defendants bound to accept the party so substituted as the one to whom they were to look for performance of the contract; the contract was therefore at an end.

The authority principally relied on in support of this contention was the case of Robson v. Drummond^[1], approved of by this Court in Humble v. Hunter.^[2] In Robson v. Drummond^[1] a carriage having been hired by the defendant of one Sharp, a coachmaker, for five years, at a yearly rent, payable in advance each year, the carriage to be kept in repair and painted once a year by the maker—Robson being then a partner in the business, but unknown to the defendant—on Sharp retiring from the business after three years had expired, and making over all interest in the business and property in the goods to Robson, it was held, that the defendant could not be sued on the contract—by Lord Tenterden on the ground that "the defendant might have been induced to enter into the contract by reason of the personal confidence which he reposed in Sharp, and therefore might have agreed to pay money in advance, for which reason the defendant had a right to object to its being performed by any other person;" and by Littledale and Parke, JJ., on the additional ground that the defendant had a right to the personal services of Sharp, and to the benefit of his judgment and taste, to the end of the contract.

In like manner, where goods are ordered of a particular manufacturer, another, who has succeeded to his business, cannot execute the order, so as to bind the customer, who has not been made aware of the transfer of the business, to accept the goods. The latter is entitled to refuse to deal with any other than the manufacturer whose goods he intended to buy. For this Boulton v. Jones^[3] is a sufficient authority. The case of Robson v. Drummond^[1] comes nearer to the present case, but is, we think, [153] distinguishable from it. We entirely concur in the principle on which the decision in Robson v. Drummond^[1] rests, namely, that where a person contracts with another to do work or perform service, and it can be inferred that the person employed has been selected with reference to his individual skill, competency, or other personal qualification, the inability or unwillingness of the party so employed to execute the work or perform the service is a sufficient answer to any demand by a stranger to the original contract of the performance of it by the other party, and entitles the latter to treat the contract as at an end, notwithstanding that the person tendered to take the place of the contracting party may be equally well qualified to do the service. Personal performance is in such a case of the essence of the contract, which, consequently, cannot in its absence be enforced against an unwilling party. But this principle appears to us inapplicable in the present instance, inasmuch as we cannot suppose that in stipulating for the repair of these waggons by the company—a rough description of work which ordinary workmen conversant with the business would be perfectly able to execute—the defendants attached any importance to whether the repairs were done by the company, or by any one with whom the company might enter into a subsidiary contract to do the work. All that the hirers, the defendants, cared for in this stipulation was that the waggons should be kept in repair; it was indifferent to them by whom the repairs should be done. Thus if, without going into liquidation, or assigning these contracts, the company had entered into a contract with any competent party to do the repairs, and so had procured them to be done, we cannot think that this would have been a departure from the terms of the contract to keep the waggons in repair. While fully acquiescing in the general principle just referred to, we must take care not to push it beyond reasonable limits. And we cannot but think that, in applying the principle, the Court of Queen's Bench in Robson v. Drummond^[1] went to the utmost length to which it can be carried, as it is difficult to see how in repairing a carriage when necessary, or painting it once a year, preference would be given to one coachmaker over another. Much work is contracted for, which it is known can only be [154] executed by means of subcontracts; much is contracted for as to which it is indifferent to the party for whom it is to be done, whether it is done by the immediate party to the contract, or by someone on his behalf. In all these cases the maxim Qui facit per alium facit per se applies.

In the view we take of the case, therefore, the repair of the waggons, undertaken and done by the British Company under their contract with the Parkgate Company, is a sufficient performance by the latter of their engagement to repair under their contract with the defendants. Consequently, so long as the Parkgate Company continues to exist, and, through the British Company, continues to fulfil its obligation to keep the waggons in repair, the defendants cannot, in our opinion, be heard to say that the former company is not entitled to the performance of the contract by them, on the ground that the company have incapacitated themselves from performing their obligations under it, or that, by transferring the performance thereof to others, they have absolved the defendants from further performance on their part.

That a debt accruing due under a contract can, since the passing of the Judicature Acts, be assigned at law as well as equity, cannot since the decision in Brice v. Bannister^[1] be disputed.

We are therefore of opinion that our judgment must be for the plaintiffs for the amount claimed.

Solicitors for plaintiffs: Bell, Brodrick, & Co.

Solicitor for defendants: Mark Shephard.

----------

[1] 2 B. & Ad. 303.

[2] 12 Q. B. 310.

[3] 2 H. & N. 564.

----------

[1] 3 Q. B. D. 569.

52 N.W.2d 320 (1952)
155 Neb. 492

BABSON
v.
VILLAGE OF ULYSSES.

No. 33112.
Supreme Court of Nebraska.
March 14, 1952.

[321] J. J. Thomas, Chas. F. Barth, Seward, for appellant.

Coufal & Shaw, David City, Flansburg & Flansburg, Lincoln, for appellee.

Heard before SIMMONS, C. J., and MESSMORE, YEAGER, CHAPPELL, WENKE, and BOSLAUGH, JJ.

YEAGER, Justice.

Here are two actions instituted by Henry B. Babson, plaintiff and appellant, against the Village of Ulysses, a municipal corporation, defendant and appellee. The two were consolidated for the purposes of trial [322] and tried as a single action. They will be regarded and treated as one action here.

By the actions plaintiff claims that there is due him from the defendant $100 a month from December 1930 to and including July 1936 with interest at seven percent per annum. The indebtedness is denied by the defendant.

A trial was had to the court at the conclusion of which it was adjudged and decreed that the defendant was not indebted to plaintiff and plaintiff's actions were dismissed. Motions for new trial were duly filed and overruled. From the judgments and the orders overruling the motions for new trial the plaintiff has appealed.

The basis of the litigation is substantially the following: The Village of Ulysses entered into an agreement with the Blue River Power Company to supply the village with electric current for all its needs for a period of 20 years commencing April 1, 1920, which energy was to be delivered at the village substation and by the village distributed to its customers. This contract was not actually entered into until September 20, 1921. As a part of the consideration the village agreed to pay to the company $100 a month for 200 months. This part of the consideration was by the parties denominated a "primary charge." It was a part of the rate structure and it appears that its design was to amortize the cost of a transmission line constructed by the company which was necessary to serve the village. The further consideration of the contract was the payment of a specific rate for each kilowatt hour for all electric current used. This was referred to as a "secondary charge." The validity of this contract was not brought into question on the trial.

There was full and complete performance by both parties under the contract until October 17, 1925. On October 17, 1925, all of the stock of the Blue River Power Company was sold to the United Light and Power Company. The stock had been owned by the plaintiff herein. By the terms of the agreement whereby the United Light and Power Company obtained this stock Babson became entitled by assignment to the payment of the $100 a month or "primary charge" from the defendant herein. He became entitled to other properties and interests theretofore belonging to the Blue River Power Company but we deem it unnecessary to describe these interests here since the village was not a party to the agreement and it is not made to appear that it ever prior to this action became informed as to its contents.

It is to be observed that this assignment represented an obligation of the United Light and Power Company to plaintiff and not one of the village to him, and that this was the method adopted by the power company and plaintiff for its liquidation.

The village was notified of assignment of the "primary charge" of $100 a month provided for in the contract. The body of the notification is the following:

"I have been instructed to inform you that at a recent meeting of the Board of Directors of the Blue River Power Company, resolutions were passed, assigning the $100.00 per month, identified as being a primary charge, in our contract with the Village, to H. B. Babson.

"In the future, commencing with the next payment, you will therefore please remit this $100.00 each month, as provided for in the contract, to H. B. Babson, 19th St. & California Avenue, Chicago, Illinois. Payments due for actual current consumed, and stipulated in the contract as being secondary charge, will be payable to the Blue River Power Company, here at Seward, as in the past.

"I kindly ask that you acknowledge receipt of this letter and make payments as per above instructions."

On May 31, 1926, the Nebraska Gas and Electric Company succeeded the United Light and Power Company and became the assignee of the Blue River Power Company contract, and on August 30, 1927, the Iowa-Nebraska Light and Power Company became the assignee thereof.

The village continued to make the monthly payments of $100 each to the plaintiff until December 1930.

[323] On December 2, 1930, the village sold its distributing system to the Iowa-Nebraska Light and Power Company and granted this company a non-exclusive right and franchise for a term of 25 years to build, operate, and maintain an electric power system in the village. The village at this time ceased to be a distributor of electric current. It ceased also to be a purchaser except for a sufficient amount of current to operate its water system. It became such purchaser under the new contract.

Upon the completion of this arrangement the power company and the village regarded the relationship, which by agreement commenced on April 1, 1920, as ended and in consequence the defendant made no further payments to the plaintiff.

The actions here are by the plaintiff to recover from the defendant the monthly payments remaining after December 1930 under the contract between the Blue River Power Company and the village of Ulysses hereinbefore described which became effective as of April 1, 1920, and entered into on September 20, 1921, except the payments for four months which were not due at the time of the commencement of the second action.

Plaintiff by his actions contends that by virtue of his assignment he became entitled to these amounts as they would have come due had the contract and performance thereof not been abandoned by the parties thereto, and to a judgment therefor against the defendant. The judgment of the trial court was a denial of this contention and a dismissal of the actions.

The briefs of plaintiff contain numerous assignments of error and the assertion of many reasons why the judgment should be reversed. We think however that a proper decision herein depends upon the one question of whether or not the plaintiff was entitled to assert a claim against the village under his assignment after the village and the Iowa-Nebraska Light and Power Company ceased to operate under the Blue River Power Company contract.

In the determination of this question it becomes necessary to examine and apply certain facts as well as certain legal principles.

There is no substantial dispute as to controlling facts. The cases come here on the transcript which contains the pleadings and judgment, a stipulation of facts, and the testimony of a single witness. The testimony of this witness was contained in a deposition which was read at the trial.

It is not disclosed by the record that the village ever was notified or had authentic knowledge of the substance or effect of any of the agreements whereby the agreement of the Blue River Power Company or the obligations thereof were transferred to the United Light and Power Company, then to the Nebraska Gas and Electric Company, and then to the Iowa-Nebraska Light and Power Company. The only thing in that connection which came authentically to its knowledge was the information contained in the notification of assignment of the "primary charge." This notification has been previously quoted at large herein. It will be observed that by this the village was notified only that the "primary charge" of $100 a month was assigned to plaintiff and the village was directed to make payments as they became due to him.

Further the record does not disclose any contractual relationship or privity with reference to this subject matter between plaintiff and defendant. In this connection the record discloses only that the village became informed that through an undisclosed arrangement between plaintiff and the power company plaintiff became entitled to receive a part of the consideration which flowed to the company under the terms of a contract which it had with the village. Whatever right plaintiff had to receive the payments of $100 each flowed from and was the obligation of the agreement or agreements between him and the power companies successively and not from any agreement with the village.

Under this state of facts the defendant contends that it and the company had the right under law to discontinue operation and performance under the contract or in other words to rescind it without liability thereafter on the part of the defendant to the plaintiff on his assignment. It contends that no obligation to pay remained after [324] the parties by mutual action discontinued operation under and performance of the agreement which became effective April 1, 1920.

The contentions of the defendant in this respect must be sustained.

The assignment here was of payments of money to become due under an executory contract which the parties thereto were privileged to rescind or discharge entirely or to modify by agreement thus relieving each from the further obligations thereof in case of rescission or discharge and substituting the new ones in case of modification. Mather v. Butler County, 28 Iowa 253; Sawyer v. Hawthorne, 167 Iowa 410, 149 N.W. 512; Smith v. Kelley, Maus & Co., 115 Mich. 411, 73 N.W. 385; Vande Stouwe v. Bankers' Life Co., 218 Iowa 1182, 254 N.W. 790; Denler & Denler Land Co. v. Eby, 277 Mich. 360, 269 N.W. 203; Enderlien v. Kulaas, 25 N.D. 385, 141 N.W. 511; 13 C.J., Contracts, § 594, p. 588, § 604, p. 589; 17 C.J.S., Contracts, § 373, p. 857, § 387, p. 879.

An assignment of a contract or a right flowing therefrom does not create a contractual obligation between the assignee and the other party to the contract in the absence of assumption of the liabilities of the assignor by the assignee. 4 Am.Jur., Assignments, § 102, p. 310; Tolerton & Stetson Co. v. Anglo-California Bank, 112 Iowa 706, 84 N.W. 930, 50 L.R.A. 777; Pioneer Loan & Land Co. v. Cowden, 128 Minn. 307, 150 N.W. 903.

In the present instance there was no assumption by the plaintiff of liabilities of the assignor to the village.

An assignee of the obligation of a contract takes subject to its burdens in the hands of the assignor and in order to recover he must show that the conditions have been performed. He is bound by the terms of the contract to the same extent as the assignor. 4 Am.Jur., Assignments, § 104, p. 311; Florida East Coast Ry. Co. v. Eno, 99 Fla. 887, 128 So. 622, 70 A.L.R. 506; Detroit Postage Stamp Service Co. v. Schermack, 179 Mich. 266, 146 N.W. 144, Ann.Cas.1915D, 287; Pioneer Loan & Land Co. v. Cowden, supra.

Here there was an absence of performance by the power company covering the entire period contemplated by the actions.

An assignee of a non-negotiable chose in action ordinarily acquires no greater right than that possessed by his assignor. He stands in the shoes of the assignor. He cannot sue if the assignor could not have maintained an action. Henefin v. Live Stock Nat. Bank, 116 Neb. 331, 217 N.W. 91, 58 A.L.R. 758; First Nat. Bank v. Rogers, 50 Nev. 325, 258 P. 1024, 58 A.L.R. 902; Florida East Coast Ry. Co. v. Eno, supra; Steltzer v. Chicago, M. & St. P. Ry. Co., 156 Iowa 1, 134 N.W. 573, L.R.A. 1915E, 1017; 4 Am.Jur., Assignments, § 95, p. 304.

After the agreement was mutually rescinded and performance abandoned no burden of payment remained upon the village. The assignor and its successors surrendered their right to receive or recover the monthly amounts. Consequently the right of the assignee to receive them from the village no longer existed.

It must be said therefore that the mutual rescission of the contract which is brought into question here destroyed the right of plaintiff to recover thereafter from the village on his assignment unless, as plaintiff contends, the pretended rescission was void and of no effect.

The basis of this contention is that the village trustees had no authority or power to alter the terms of or abandon the contract of September 20, 1921. The theory is that authority for the proceedings in this connection was not received through a vote of the electors of the village, which plaintiff insists was a condition precedent to the exercise of such power.

Our attention however has not been called to any statutory provision in existence at the time of the rescission imposing any such requirement. Attention is directed to section 70-604, C.S.1931, erroneously referred to as section 70-605, which prohibits the sale, lease, or transfer of an electric light or power plant, distribution system, or transmission lines by a village without a vote of the qualified electors. This [325] provision however did not come into being until one day following this rescission.

Reliance is had also on section 17-508, Comp.St.1929, now sections 17-901 to 17-904, R.S.1943. This section in nowise relates to existing contractual relationships. It relates to powers and restrictions thereon to enter into contracts.

It is concluded that the claim of the plaintiff as made that the rescission was void and of no effect is without merit.

The judgments of the district court are affirmed.

Affirmed.

3 Russ. 1
38 Eng Rep. 475

DEARLE
v.
HALL

[3 Russ. 48] [38 Eng. Rep. 492] Nov. 8, 9, 1827. The appeal in Dearle v. Hall was heard.

Before the Lewd Chancellor [Lyndhurst]. Mr. Sugden and Mr. Phillimore, for the appellants.

They urged the same topics, and referred to the same authorities, as were relied on by Mr. Shadwell in Loveridge v. Cooper. They further cited Tourville v. Naish (3 P. Wms. 307); the dictum in Brace v. The Duchess of Marlborough (2 P. Wms. 495), "That, in all cases where the legal estate is standing out, the several incumbrancers must be paid according to their priority in point of time"; and Lord [38 Eng. Rep. 493] Thurlow’s dictum in Davies v. Austen (1 Ves. Jun. 249), "A purchaser of a chose in action must always abide by the case of the person from whom he buys: that I take to be an invariable rule."

The negligence, said they, which was imputed to the Plaintiffs was merely this, that, having an incumbrance on a fund, they had omitted to take a step which might probably have been the means of bringing the existence of the incumbrance to the knowledge of intending purchasers. But where was the authority, which justified the court in [3 Russ. 49] imposing such a duty on an incumbrancer? The contrary doctrine was established by Osborne v. Lea (9 Mod. 96), where it was held, that a person, having an incumbrance on an estate, was not bound to give notice of it to persons whom he knew to be in treaty for the purchase of the property.

Looking merely at the comparative want of caution in the parties, the Plaintiffs were not more culpable than Hall. The enrolment of their annuities furnished to the whole world ample means of protection; and if Hall had searched at the enrolment-office, he would have found that he was purchasing a property which his vendor had previously parted with.

In the argument before the Master of the Rolls, a case of Wright v. Lord Dorchester (3) has cited as an au [3 Russ. 50] thority for preferring a second incumbrancer, who had given notice, to a prior incumbrancer who had not given notice. The order made in that suit was merely inter [3 Russ. 51] locutory; and, though the dividends were directed to be paid to the second incumbrancer, he was required to give security to refund them, if the final decree of Court should [3 Russ. 52] not be in his favour. It is, therefore, evident, that Lord Eldon did not mean to decide the question in that stage of the cause.

[3 Russ. 53] Mr. Horne and Mr. Barber, for Hall. They followed the same train of argument, which had been urged by the defendant in Loveridge v. Cooper; [3 Russ. 54] and further cited, Burrowes v. Lock (10 Ves. Jun. 475), Ex parte Knott (11 Ves. 609, 618), and Wright v. Lord Dorchester.

The order made in the last of these cases was, they argued, a direct authority on the point; for Lord Elden would not have dissolved the injunction, and directed payment to be made to the second incumbrancer, if he had not had a clear and decisive opinion on the subject. It had been stated by one of the counsel who were concerned in that case, that the Lord Chancellor was of opinion, that the power of attorney, which was executed by the trustees to the solicitor of the second purchaser, was equivalent to a declaration of trust in his favour. Lord Eldon required that Brown should give security to refund the money, not because he had any doubt as to the law upon the facts as they were presented to the Court by Brown's answer, but because, when the cause came to a hearing, those facts might be displaced, and the Court might have then to adjudicate upon a totally different state of circumstances. Brown might fail in proving that he had made the inquiry, received the answer, and given the notice, which his answer insisted on; for the purpose of the motion to dissolve the injunction, the Court was to act upon the statements of the answer on those points; at the hearing, those statements would go for nothing; the decree would proceed merely upon the facts proved; and Brown was required to give security to refund, because it might happen that the facts proved in the cause would not coincide with the facts stated in his answer.

If the trustees had concurred in the assignment to Hall, who could have doubted that he would have acquired a priority, which could not have been taken away from him? [3 Russ. 55] Though they have not concurred in the assignment, and though he had no right to require them to concur in it, does not their promise to pay the dividends to him, — does not an actual receipt of a part of those dividends, — place him in the same situation, with respect to other claimants, as if the trustees had been parties to the deed? The plaintiffs do not pretend that they can recall from Mr. Hall the sums which he has received; yet, if they have the better title, their right ought to extend to the dividends which were paid to him as well as to the dividends accrued subsequently, which have remained in the hands of the trustees, or of the Court. Negligence is not imputable to Hall because he did not search for annuities. What was there to put him upon such inquiry? Who ever imagined, that every purchaser of an equitable interest in stock is to make a search at the enrolment-office, in order to ascertain whether his vendor has previously granted [Eng Rep. 494] annuities. (Wilks v. Boddington, 2 Vernon, 599. Frere v. Moore, 8 Price, 480. See also 18 Ves. 112, 113; 2 Ves. Sen. 486; 1 Ball & Beattie, 171.)

December 24, 1828. The Lord Chancellor [Lyndhurst]. The cases of Dearle v. Hall, and Loveridge v. Cooper, were decided by Sir Thomas Plumer; and from his decree there is, in each of them, an appeal, which stands for judgment. As the two cases depend on the same principle, though the facts are, to a certain decree, different, the better course will be to dispose of both together; and as Dearle v. Hall was the first of the two which came before the Court below, though it was not argued on appeal till after Loveridge v. Cooper had been heard, I shall first direct my attention to the facts on which it depends.

[3 Russ. 56] Zachariah Brown was entitled, during his life, to about £93 a-year, being the interest arising from a share of the residue of his father's estate, which, in pursuance of the directions in his father's will, had been converted into money, and invested in the names of the executors and trustees. Among those executors and trustees was a solicitor of the name of Unthank, who took the principal share in the management of the trust. Zachariah Brown, being in distress for money, in consideration of a sum of £204, granted to Dearle, one of the Plaintiffs in the suit, an annuity of £37 a-year, secured by a deed of covenant and a warrant of attorney of the grantor and a surety; and, by way of collateral security, Brown assigned to Dearle all his interest in the yearly sum of £93: but neither Dearle nor Brouwn gave any notice of this assignment to the trustees under the father's will.

Shortly afterwards, a similar transaction took place between Brown and the other Plaintiff, Sherring, to whom an annuity of £27 a-year was granted. The securities were of a similar description; and, on this occasion, as on the former, no notice was given to the trustees.

These transactions took place in 1808 and 1809. The annuities were regularly paid till June 1811; and then, for the first time, default was made in payment.

Notwithstanding this circumstance, Brown, in 1812, publicly advertised for sale his interest in the property under his father's will. Hall, attracted by the advertisement, entered, through his solicitor, Mr. Patten, into a treaty of purchase; and it appears from the correspondence between Mr. Patten and Mr. Unthank, that the former exercised due caution in the transaction, and [3 Russ. 57] made every proper inquiry concerning the nature of Brown's title, the extent of any incumbrances affecting the property, and all other circumstances of which it was fit that a purchaser should be apprised. No intimation was given to Hall of the existence of any previous assignment; and his solicitor being satisfied, he advanced his money for the purchase of Brown's interest, and that interest was regularly assigned to him. Mr. Patten requested Unthank to join in the deed: but Mr. Unthank said, "I do not choose to join in the deed; and it is unnecessary for me to do so, because Z. Brown has an absolute right to this property, and may deal with it as he pleases." The first half-year's interest, subject to some deductions, which the trustees were entitled to make, was duly paid to Hall; and, shortly afterwards, Hall for the first time ascertained, that the property had been regularly assigned, in 1808 and 1809, to Dearle and to Sherring.

Sir Thomas Plumer was of opinion, that the Plaintiffs had no right to the assistance of a court of equity to enforce their claim to the property as against the Defendant Hall, and that, having neglected to give the trustees notice of their assignments, and having enabled Z. Brown to commit this fraud, they could not come into this Court to avail themselves of the priority of their assignments in point of time, in order to defeat the right of a person who had acted, as Hall had acted, and who, if the prior assignments were to prevail against him, would necessarily sustain a great loss. In that opinion I concur.

It was said, that there was no authority for the decision of the Master of the Rolls — no case in point to support it; and certainly it does not appear that the precise question has ever been determined, or that it has [3 Russ. 58] been even brought before the Court, except, perhaps, so far as it may have been discussed in an unreported case of Wright v. Lord Dorchester. But the case is not new in principle. Where personal property is assigned, delivery is necessary to complete the transaction, not as between the vendor and the vendee, but as to third persons, in order that they may not be deceived by apparent possession and ownership remaining in a person, who, in fact, is not the owner. This doctrine is not confined to chattels in [38 Eng. Rep. 495] possession, but extends to choses in action, bonds, &c.: in Ryall v. Rowles (1 Ves. Sen. 348; 1 Atk. 165) it is expressly applied to bonds, simple contract-debts, and other choses in action. It is true that Ryall v. Rowles was a case in bankruptcy; but the Lord Chancellor called to his assistance Lord Chief Justice Lee, Lord Chief Baron Parker, and Mr. Justice Barnett; so that the principle, on which the Court there acted, must be considered as having received most authoritative sanction. These eminent individuals, and particularly the Lord Chief Baron and Mr. Justice Burnett, did not, in the view which they took of the question before them, confine themselves to the case of bankruptcy, but stated grounds of judgment which are of general application. Lord Chief Baron Parker says, that, on the assignment of a bond debt, the bond should be delivered, and notice given to the debtor; and he adds, that, with respect to simple contract-debts, for which no securities are holden, such as book-debts for instance, notice of the assignment should be given to the debtor in order to take away from the debtor the right of making payment to the assignor, and to take away from the assignor the power and disposition over the thing assigned (1 Ves. Sen, 367; 2 Atk. 177). In cases like the present, the act of giving the trustee notice, is, in a certain degree, taking possession of the fund: it is going as far towards equit [3 Russ. 59] able possession as it is possible to go; for, after notice given, the trustee of the fund becomes a trustee for the assignee who has given him notice. It is upon these grounds that I am disposed to come to the same conclusion with the late Master of the Rolls.

I have alluded to a case of Wright v. Lord Dorchester, which was cited as an authority in support of the opinion of the Master of the Rolls. In that case, a person of the name of Charles Sturt, was entitled to the dividends of certain stock, which stood in the names of Lord Dorchester and another trustee. In 1793, Sturt applied to Messrs. Wright and Co., bankers at Norwich, for an advance of money, and, in consideration of the monies which they advanced to him, granted to them two annuities, and assigned his interest in the stock as a security for the payment. No notice was given by Messrs. Wright and Co. to the trustees. It would appear that Sturt afterwards applied to one of the defendants, Brown, to purchase his life-interest in the stock; Brown then made inquiry of the trustees, and they stated that they had no notice of any incumbrance on the fund: upon this B. completed the purchase, and received the dividends for upwards of six years. Messrs. Wright then filed a bill, and obtained an injunction, restraining the transfer of the fund or the payment of the dividends; but, on the answer of Brown, disclosing the facts with respect to his purchase, Lord Eldon dissolved that injunction. At the same time, however, that he dissolved the injunction, he dissolved it only on condition that Brown should give security to refund the money, if, at the hearing, the Court should give judgment in favour of any of the other parties. That case was attended also with this particular circumstance, that the party, who pledged the fund, stated by his answer, that, when he executed the security to Wright and Co., he considered that the pledge was meant [3 Russ. 60] to extend only to certain real estates. For these reasons, I do not rely on the case of Wright v. Lord Dorchester as an authority; I rest on the general principle to which I have referred; and, on that principle, I am of opinion that the Plaintiffs are not entitled to come into a court of equity for relief against the Defendant Hall. The decree must, therefore, be affirmed, and the deposit paid to Hall.

The case of Loveridge v. Cooper, though the circumstances are somewhat different, is the same in principle with Dearle v. Hall, and must follow the same decision.

(1) 1 Ves. Sen. 367. This passage of the judgment of the Lord Chief Baron is given by Atkyns (1 Atk. 177) in the following words: "If a bond is assigned, the bond must be delivered, and notice must be given to the debtor; but in assignments of book-debts, notice alone is sufficient, because there can be no delivery; and such acts as are equal to a delivery of goods which are capable of delivery. Domat. l. i. t. 2, s. 2. par. 9, says, 'Things incorporeal, such as debts, cannot properly be delivered.' This is to shew the nature of assignments of debts by notice to the debtor. This clause, therefore, extends to things in action; and all has not been done that might have been done by the assignee to vest the right of them in himself, [38 Eng. Rep. 496] and to take away from the bankrupt the power and disposition of them, for no notice has been given to the debtors."

(2) Mr. Sugden's Treatise on the Law of Vendors and Purchasers (edition 1822) contains the following observations on the subject: — "A purchaser of any equitable right, of which an immediate possession cannot be obtained, should, previous to completing his contract, inquire of the trustees, in whom the property is vested, whether it is liable to any incumbrance. If the trustee make a false representation, equity would compel him to make good the loss sustained by the purchaser in consequence of the fraudulent statement. Burrowes v. Lock, 10 Ves. 470. When the contract is completed, the purchaser should give notice of the sale to the trustee. The notice would certainly affect the conscience of the trustee, so as to make him liable in equity, should he convey the legal estate to any subsequent purchaser; and it would also, perhaps, give the purchaser a priority over any former purchaser, or incumbrancer, who had neglected the same precaution." Page 11.

"Upon the purchase of a chose in action, or of any equitable right, it is the invariable practice of the profession to require notice of the sale to be given to the trustee. This, of course, binds his conscience. And notwithstanding the general rule, that, with respect to equitable right, qui prior est tempore potior est jure,^[1] it seems probable that equity would prefer a subsequent purchaser, who had given a proper notice to the trustee, to a prior purchaser, who had neglected to do so. At least, there is a case^[2] which seems, in some measure, to authorise this conclusion." Page 700.

(3) The following were the material circumstances in Wright v. Lord Dorchester [S. C. 2 L. J. Ch. (O. S.) 78]. — Mr. Sturt was entitled to a life-interest in a sum of stock standing in the names of Lord Dorchester and Mr. Bouverie; and, in 1793, assigned it, with other property, to Wright, as a security for the payment of two annuities. In 1795, he proposed to sell his interest in the stock to Brown, who, having inquired of the trustees, and being informed by them, that they knew of no incumbrance on the fund, completed his purchase: and the trustees executed a power of attorney to Brown's solicitor, under which the dividends were received and paid to Brown till 1801. In that year Wright filed a bill, and obtained an injunction to restrain the transfer of the stock and the payment of the dividends.

The answer of Brown stated the title under which he claimed; and that of Sturt alleged, that Wright's security was meant to comprehend nothing beyond certain real estates.

Upon the answer, Lord Eldon, in 1809, dissolved the injunction against the payment of the dividends, and ordered the dividends to be paid to Brown, upon his giving security to refund the amount, in case a decree should be made against him.

The order made in that cause was as follows:—

Between John Wright, Ichabod Wright, Francis Beresford, and Francis Evans, Plaintiffs, and George Darner, Esquire, now Earl of Dorchester, and Edward Bouverie, Charles Sturt, Jonathan Brown, and the Governor and Company of the Bank of England, Defendants.

Whereas, by an order made in this cause, hearing date the 20th day of July 1801, it was, for the reasons therein contained, ordered, that the defendants, the Governor and Company of the Bank of England, should be restrained from per­mitting a transfer of the principal sum of £13,245, 0s. 7d. bank 3 per cent. consolidated annuities, in the pleadings in this cause mentioned, and also from paying the interest or dividends due, or thereafter to grow due, on the said principal sum, until the Defendants should fully answer the plaintiffs' bill, and this Court make other order to the contrary. Now, upon opening of the matter, &c., by Mr. Leach and Mr. Bell of counsel for the defendant Jonathan Brown, it was alleged, that the plaintiffs exhibited their bill in this Court against the defendants, stating, among other things, that, some time previous to the 27th day of December 1790, the sum of £13,245, 0s. 7d. 3 per cent. consolidated bank annuities was invested in the books of the Governor and Company of the Bank of England, in the names of the Honourable George Damer, afterwards Earl of Dorchester, and the Honourable Edward Bouverie, on certain trusts by some deed declared, and that the said Charles Sturt was entitled to receive the dividends and interest thereof for the term of his natural life; and that the said Charles Sturt had granted two annuities, amounting together to the sum of £2400, and had [Eng rep. 497] assigned to the plaintiff John Wright, his executors, administrators, and assigns, certain securities, including, among other things, the dividends of the £13,245, 0s. 7d. upon the several trusts mentioned in an indenture, bearing date the 14th day of March 1793; that, afterwards, the said annuity of £2400 was, by default of Charles Sturt, greatly in arrear, and, therefore, the plaintiffs applied for and obtained the order dated the 20th day of July 1801; — that the defendant Jonathan Brown hath put in his answer to the plaintiffs' bill, whereby he, among other things, saith, that the said Charles Sturt, having occasion for a sum of money in June 1795, applied to his, the defendant's, solicitor, to procure him the same, and proposed to sell his life-interest, which he was entitled to in the dividends of the said 3 per cent. bank annuities, amounting to the sum of £397, 7s.; that the said Charles Sturt then assured his, the defendant's solicitor, that the dividends were free from all incumbrances whatsoever; that his solicitor did apply to the Earl of Dorchester and the Honourable Edward Bouverie, the trustees named in the marriage settlement of the said Charles Sturt, with Lady Mary Ann Ashley Cooper, in whom the said 3 per cent. consolidated bank annuities are vested, and that the said trustees informed his said solicitor, that they had not heard of or knew of any person entitled thereto, or who had made any claim thereto, to their knowledge or belief, except the said Charles Sturt; that his said solicitor made the said trustees acquainted with the said treaty; that, by indenture bearing date the 18th day of June 1795, the said Charles Sturt, for the considerations therein mentioned, assigned the dividends of the said £13,245, 0s. 7d. 3 per cent. consolidated bank annuities to the said defendant for the term of the natural life of the said Charles Sturt; that the said George Earl of Dorchester, and the said Edward Bouverie, duly executed a power of attorney authorizing and empowering John Claridge, his, the defendant's, solicitor, to receive the interest and dividends of the said trust stock for the use of him the said defendant, as the same became due and by virtue thereof the said John Claridge duly received the interest and dividends of the said trust-stock until Midsummer 1801, a period of six years or upwards, without any interruption or molestation by any person whatsoever; — that the said defendant Charles Sturt hath put in his answer to the plaintiffs' bill, and, among other things, saith, that whatever may have been the particular expressions introduced into the said several indentures in the bill mentioned, it was the true understanding and agreement between him, Sturt, and the plaintiffs, that the plaintiffs should have the security of the real estates only granted to them, and, in order to prevent any doubt or misunderstanding what estates in particular belonging to him, the said defendant, were to be comprised in the grant of the annuity in the said plaintiffs' bill mentioned, a rental or schedule of such real estates of him, the said defendant, mentioned and intended as a security for the said annuity of £2400, was made out and approved by the said plaintiffs or their agents, or some of them, and the same rental or schedule was annexed to the said grant; — and therefore it was prayed, that the said injunction for restraining the Governor and Company of the Bank of England from permitting a transfer of the £13,245, 0s. 7d. 3 per cent. consolidated annuities, and also from paying the dividends due, or thereafter to accrue due on the same, may be dissolved: — Whereupon, and upon hearing Sir Samuel Romilly, of counsel for the plaintiffs, and Mr. Trower, of counsel for the defendant the Honourable Edward Bouverie, and the said order, dated the 20th day of July 1801, read, and what was alleged by the counsel for the said parties, — and the defendant Jonathan Brown, by his counsel, undertaking to give security to be approved of by Mr. Ord, one of the Masters of this Court, to whom the cause Portman v. Sturt stands referred to refund all dividends which he shall receive in respect of the bank annuities mentioned in the notice, until the hearing of this cause, after retaining the arrear of the property duty payable in respect thereof, in case the plaintiffs, or the defendants, the trustees, shall be declared to be entitled to such dividends,—upon the said Jonathan Brown giving such security, to be approved of by the said Master, his Lordship doth order, that the injunction granted in this cause, to restrain the defendants, the Governor and Company of the Bank of England, from paying such dividends, be dissolved; and it is ordered, that such dividends be received by the said John Claridge, on behalf of the said Jonathan Brown, by virtue of the letter of attorney given to him in the pleadings mentioned, until the hearing of this cause, or the further order of this Court: And it is ordered, that the plaintiffs do pay [38 Eng. Rep. 498] unto the defendant, the Honourable Edward Bouverie, the surviving trustee named in the indenture of settlement made on the marriage of the defendant Charles Sturt with Lady Mary Ann Ashley Cooper, bearing date the 11th day of April 1788, his costs of this suit up to this time, to be taxed by the said Master; but such payment is to be without prejudice to any questions by whom the same are ultimately to be paid. (It does not appear that the question came again before the Court in any subsequent stage of the cause.)

Reg. Lib. B. 1808, fo. 420.

[1] See Tourville v. Naish, 3 P. Wms. 307, and see 2 P. Wms. 495; 15 Ves. 354; 2 Taunt. 415.

[2] Stanhope v. Earl Verney, Butler's n. (1) to Co. Litt. 290 b, and see 1 Ves. Sen. 367; 9 Ves. 410.

257 App. Div. 101

STATE FACTORS CORPORATION, Appellant,
v.
SALES FACTORS CORPORATION, Respondent.

First Department, May 19, 1939.

[102] APPEAL by the plaintiff from a judgment of the Supreme Court, entered in the office of the clerk of the county of New York on the 6th day of June, 1938.

Marcy Finkelstein of counsel [Finkelstein & Jacobs, attorneys], for the appellant.

Leo Guzik of counsel [Abraham A. Wedeen with him on the brief, attorney], for the respondent.

UNTERMYER, J. In 1937 Lerner Bros., a partnership engaged in the business of manufacturing fur coats, found it necessary to factor their accounts receivable. For that purpose, on April 30, 1937, they entered into a factoring contract with the defendant under which the defendant agreed to purchase "without recourse," and Lerner Bros, agreed to assign to the defendant, all accounts receivable, subject to the right of the defendant to approve the credit of any account. Upon such assignment the defendant agreed to pay eighty per cent of the face amount of the invoices. The agreement further required that all such invoices to customers of Lerner Bros, bear a printed indorsement that the account had been assigned and that the billing on such invoices, by whomever done, should operate as an assignment to the defendant.

On September 8, 1937, Lerner Bros, also entered into a contract with the plaintiff by which all such accounts receivable as might be approved by the plaintiff were agreed to be assigned to the plaintiff "as the same are created" against advances of seventy per cent of the face amount of the assigned accounts. The plaintiff was accorded the right, presumably for its own protection, but was not required, to give notice of the assignment to customers of Lerner Bros., which right, however, the plaintiff did not exercise. The contract provided that any remittance paid to Lerner Bros, on an assigned account should be held in trust and immediately delivered to the plaintiff in the identical form in which it was received.

On September 8, 11, 14, 16, 20 and 21, 1937, Lerner Bros, delivered written assignments of certain accounts receivable to the plaintiff together with supporting documents and received payments in accordance with the contract of September 8, 1937. Thereafter, and in each instance subsequent to delivery of the assignments to the plaintiff, Lerner Bros, executed assignments of the same accounts to the defendant and received payments from the defendant in accordance with the contract of April 30, 1937. With these assignments were delivered to the defendant and mailed to the respective purchasers, invoices bearing an indorsement of the [103] assignment of the account to the defendant. Payment of the accounts was, therefore, made to the defendant notwithstanding the plaintiff's assignments, of which the purchasers of merchandise from Lerner Bros, do not appear to have been aware. The Special Term has found upon sufficient evidence that neither plaintiff nor defendant was aware of the transactions between Lerner Bros, and the other.

The present action is not concerned with the rights of purchasers of merchandise from Lerner Bros., who no doubt were protected in making payment to the defendant under the only assignment of which notice was given. Failure of the plaintiff to give such notice, however, would not affect its right to recover from the defendant if the accounts which were collected were the plaintiff's property. (Salem Trust Co. v. Manufacturers' Finance Co., 264 U. S. 182.) It is upon this theory that the action is maintained to require the defendant to account for payments received on debts which, it is claimed, had previously been assigned to the plaintiff.

The question thus presented is which of these two innocent parties shall suffer the loss occasioned by the fraud of Lerner Bros. We think upon the conceded facts the plaintiff is entitled to prevail. If we assume, notwithstanding the plaintiff's contention to the contrary, that the defendant's contract is supported by a sufficient consideration, it entitled the defendant to an assignment of all accounts thereafter to be created. Legal title did not thereby pass to the defendant until further action on the part of Lerner Bros, manifesting such a purpose after accounts had been created by the sale of merchandise. (Rochester Distilling Co. v. Rasey, 142 N. Y. 570.) The contract only created equitable rights (Stephenson v. Go-Gas Co., 268 N. Y. 372) enforcible against Lerner Bros, or any assignee of Lerner Bros, having notice thereof. (Hinkle Iron Co. v. Kohn, 229 N. Y. 179.) Those equities might also prevail if the plaintiff, though without notice, had acquired the accounts without payment of a new consideration. (Central Trust Co. v. West India Imp. Co., 169 N. Y. 314; Suchy v. Frankenberg, 251 App. Div. 349.) But where, as here occurred, the plaintiff acquired legal title to the accounts without knowledge of infirmity and upon payment of a new consideration, it occupied the position of a purchaser for value without notice, whose legal title is superior both to the defendant's earlier equitable rights under the contract of April 30, 1937 (Glass v. Springfield L. I. Cemetery Society, 252 App. Div. 319; leave to appeal denied, 276 N. Y. 687) and to subsequent assignments. (Fortunato v. Patten, 147 N. Y. 277; Fairbanks v. Sargent, 104 id, 108.)

[104] The judgment should be reversed, with costs, and judgment directed in favor of the plaintiff for the relief demanded in the complaint, with costs.

MARTIN, P. J., O'MALLEY, GLENNON and DORE, JJ., concur.

Judgment unanimously reversed, with costs, and judgment directed in favor of plaintiff for the relief demanded in the complaint, with costs. The findings inconsistent with this determination should be reversed and such new findings made of facts proved on the trial as are necessary to sustain the judgment hereby awarded. Settle order on notice.