221 F.2d 923 (5th Cir. 1955), 15159, M. M. Landy, Inc. v. Nicholas

Docket Nº:15159.
Citation:221 F.2d 923
Party Name:M. M. LANDY, Inc., Appellant, v. John NICHOLAS, as Receiver of Continental Charterers, Inc., Bankrupt, Appellee.
Case Date:April 26, 1955
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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221 F.2d 923 (5th Cir. 1955)

M. M. LANDY, Inc., Appellant,


John NICHOLAS, as Receiver of Continental Charterers, Inc., Bankrupt, Appellee.

No. 15159.

United States Court of Appeals, Fifth Circuit.

April 26, 1955

Page 924

Don G. Nicholson, Henry M. Sinclair (of Choate & Sinclair, Miami, Fla., for appellant.

Harold Friedman, Feibelman & Friedman, Miami, Fla., for appellee.

Before HUTCHESON, Chief Judge, TUTTLE, Circuit Judge, and DAWKINS, District Judge.

TUTTLE, Circuit Judge.

This case involves the application of the preference provisions of § 60, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, to loans made on the security of assigned choses in action against the United States. The assignments were neither recorded as assignments of accounts receivable nor made in compliance with the Federal Assignment of Claims statute, 31 U.S.C.A. § 203, but United States Government warrants evidencing or representing the assignor's rights to payment of the choses in action are by virtue of the assignment agreement in the possession of the assignee.

Because neither a copy of the assignment agreement nor a copy of the warrants was introduced into evidence, and because the stipulation of facts upon which the case was submitted to the Referee does not include several essentials to a final determination of the rights of the parties, it has been somewhat difficult to accommodate or fit the rationale of the trial court and the argument of counsel to the ultimate facts which we find necessary to decide this case. One factor which we believe goes to the very core of the controversy, but the importance of which does not seem to have been recognized clearly either in the judgment or in the argument of counsel, is that two different stages were involved in the security arrangement that gave rise to this dispute. The first stage was the assignment of certain accounts receivable to M. M. Landy, Inc., and the second was the transfer of the warrants, as contemplated in the agreement. It is the right to the warrants, or the right to money which they evidence or represent, that is in issue here.

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This proceeding was commenced by a petition filed in the pending bankruptcy case, in effect alleging that M. M. Landy, Inc. (hereinafter 'Landy') was in possession of certain United States Government warrants issued to the bankrupt; that under Federal laws the said warrants were not assignable and that, therefore, the warrants were the property of the bankrupt and should be turned over to the receiver. To this petition, and in response to an order to show cause, appellant admitted possession but alleged the warrants were the property of Landy, having been purchased for good and valuable consideration. The issue was tried by the Referee upon the following stipulation of the facts which the parties and Referee deemed sufficient:

'1. The bankrupt entered into an agreement with M. M. Landy, Inc. to assign certain receivables then due and to become due in the future to M. M. Landy, Inc. as security for certain cash advances made by M. M. Landy, Inc. to said bankrupt.

'2. In accordance with said agreement, said bankrupt was advanced certain monies by M. M. Landy, Inc. and assigned as security the accounts receivable then due and owing by the United States Government to Continental Charters, Inc.

'3. In accordance with Section 524 of the Florida Statutes, and assignment was filed with the Secretary of State naming M. M. Landy and H. J. Mahler as assignees and Continental Charters, Inc. as assignor on February 11, 1952.

'4. That there is no record of a notice of assignment being filed with the office of the Secretary of State reflecting M. M. Landy, Inc. as assignee and Continental Charters, Inc. as assignor, and there was no renewal of the notice of assignment in accordance with Section 524 of the Florida Statutes of the original assignment between M. M. Landy and H. J. Mahler as assignees and Continental Charters, Inc. as assignor.

'5. That M. M. Landy, Inc. is now holding United States Government warrants amounting to the sum of $8, 615.45 in which Continental Charters, Inc. is reflected as the payee.

'6. That the United States Government has not been notified of the assignment of Continental Charters, Inc. to M. M. Landy, Inc., of any accounts receivable and that M. M. M. Landy, Inc. has not availed tself of the provisions of the United States Code Annotated as reflected in Title 31, Section 203.

'7. M. M. Landy has a valid assignment of accounts receivable of Continental Charters, Inc. and they have exercised continuous dominion over prior accounts receivable assigned to them by Continental Charters, Inc. by virtue of said agreement.' 1

The Referee's findings state, and we accept as fairly inferred from the stipulation, 'that present consideration was given to the bankrupt at the time of the assignment of the accounts receivable, of which said Government warrants represent payments.' 2 No copy of the warrants was introduced into the record or attached as an exhibit, but from the stipulation and from the statements in the appellee's brief that 'certain monies were due the bankrupt on an open account receivable, and warrants were issued by the U.S Government to pay said account, ' and 'we agree that the warrants are non-negotiable, ' we conclude that the

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parties agreed that the warrants are non-negotiable orders on the Treasury to pay certain sums to the bankrupt, due on the assigned claims. There was no stipulation and no finding that Landy, or any of its agents had, at the time the transfer was made, reasonable cause to believe that Continental was insolvent, which is a fact essential to avoiding a preference, under 11 U.S.C.A. § 96, sub. b.

On the basis of these facts the Referee concluded that Landy's security interest was never perfected under § 60, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, and that there was a voidable preference under that section; accordingly, he ordered Landy to turn over the warrants to the Receiver. The district court affirmed the Referee's order.

We are obliged to reverse the order on the ground that no finding was made that the transferee had reasonable ground to believe that Continental was insolvent either at the time of delivery to it of the warrants or even immediately before bankruptcy, nor was any evidence introduced to prove this fact essential to the Receiver's case. 11 U.S.C.A. § 96, sub. b; 3 Collier, Bankruptcy (14th Ed.) P60.52. We think the Referee and trial court erred in another respect, in finding that Landy's security interest was never perfected. The proper decision of that matter turns upon the construction of two statutes, the Federal Assignment of Claims statute, 31 U.S.C.A. § 203, and the Florida Assignment of Accounts Receivable Act, Fla.Stats.Ann. §§ 524.01-524.09; and upon the question whether under Florida law Landy had a perfected pledge.

I. Effect of 31 U.S.C.A. § 203.-- Although the Receiver's original petition was based solely on this point, appellant's brief discusses this statute 3 in a very

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cursory manner, and it is not even cited in the Receiver's brief. There is some conflict in the authorities as to the effect of this statute as between the parties to a non-conforming assignment. The cases of National Bank of Commerce of Seattle v. Downie, 218 U.S. 345, 31 S.Ct. 89, 54 L.Ed. 1065, and Spoffard v. Kirk, 97 U.S. 484, 24 L.Ed. 1032, which said that such an assignment was of no effect and unenforceable even between the parties thereto, have never been expressly overruled, although Martin v. National Surety Company, 300 U.S. 588, 57 S.Ct. 531, 81 L.Ed. 822, distinguishing Downie on the ground that there, payment had not been made by the Government at the time the assignee sought to enforce the assignment, reached a result quite inconsistent with the ratio decidendi in Downie. See In re Italian Cook Oil Corp., 3 Cir., 190 F.2d 994; In re Webber Motor Co., D.C.D.N.J., 52 F.Supp. 742; Note, 'The Assignment of Government Contracts as Collateral, ' 101 U.Pa.L.Rev. 106, 107-108. We need not go so far here as to say that an assignment of an unliquidated claim would be enforceable between the parties, however, because here warrants had been issued prior to bankruptcy, cf. In re Meadow Sweet Farms, Inc., D.C.W.D.N.Y., 32 F.Supp. 119; but the facts of this case do go beyond those of the Martin case-- where payment had been made by the Government ante litem motam-- and we therefore...

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