417 F.2d 1277 (9th Cir. 1969), 22507, DuBay v. Williams
|Docket Nº:||22507, 22507-A, 22507-B.|
|Citation:||417 F.2d 1277|
|Party Name:||R. Anthony DuBAY, Appellant, v. Everette H. WILLIAMS, Appellee. Everette H. WILLIAMS, Appellant, v. ROSE CITY DEVELOPMENT CO., Inc., Appellee. Robert J. DAVIS, Appellant, v. Everette H. WILLIAMS, Appellee.|
|Case Date:||August 20, 1969|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
[Copyrighted Material Omitted]
Don S. Willner (argued) of Willner, Bennett & Leonard, Portland, Or., for appellant DuBay.
Boyd J. Long (argued) of Boyrie, Miller & Long, Portland, Or., and George M. Treister (argued) of Quittner, Stutman, Treister & Glatt, Los Angeles, Cal., for appellee trustee.
Sussman, Shank & Wapnick, Portland, Or., for appellant Davis.
Robert Haydock, Jr., Boston, Mass. (argued) Bullivant, Dezendorf & McKeown, Portland, Or., for amicus curiae Oregon Commissioners on Uniform State Laws.
Severson, Werson, Berke & Bull, James B. Werson, San Francisco, Cal., for amicus
curiae National Commercial Finance Conference, Inc.
Before BARNES and HUFSTEDLER, Circuit Judges, and JAMESON, [*] District Judge.
HUFSTEDLER, Circuit Judge:
Before us are three appeals from orders of the United States District Court for the District of Oregon adjudicating the claims of three creditors asserting security interests in the net proceeds of accounts receivable of the Portland Newspaper Publishing Co., Inc. (the 'Bankrupt'). The three creditors are Rose City Development Company, Inc. ('Rose City'), Robert J. Davis, and R. Anthony DuBay. The Referee disallowed all three claims as preferences under section 60 of the Bankruptcy Act, 11 U.S.C. § 96. Petitions for review resulted in orders of the District Court affirming disallowance of the claims of Davis and DuBay reversing disallowance of Rose City's claims, 1 from which orders the parties adversely affected appeal.
The combined appeals present a chromatic scale of questions relating to the interaction of the provisions of the Uniform Commercial Code concerning security interests in accounts receivable and the preference provisions of the Bankruptcy Act. 2 Each of the creditors claims a security interest, good against the trustee in bankruptcy, in the existing and future balances of the Bankrupt's accounts receivable pursuant to security agreements. DuBay's security agreement was executed before the Uniform Commercial Code became effective in Oregon. Davis' security agreement and that of Rose City were executed after the Code became effective.
The three creditors were closely involved in the short and turbulent life of the Portland Reporter, a newspaper, and in the operation of its publisher, the Bankrupt, and the Bankrupt's predecessor, the Portland Reporter Publishing Company, Inc. (the 'Reporter'). In November 1959 the Portland Stereotypers Union struck Portland's two dailies, the Oregonian and the Oregon Journal. Members of other local unions refused to cross the Stereotypers' picket lines. The two dailies joined forces and continued publication of their respective papers despite the strike. The affected local unions organized Reporter to employ their idled workers and to compete with the struck dailies. The Reporter was organized early in 1960 to publish the paper, and, concurrently, the unions incorporated Rose City to acquire the physical plant for Reporter. Rose City acquired and converted a warehouse and leased it to Reporter for its publication base. The financial condition of Reporter, precarious from the outset, steadily deteriorated until, in February 1964, the Reporter announced that it would suspend publication. The announcement touched the pocketbooks as well as the sentiments of the public, producing contributions of $50,000 and temporary loans of another $50,000, which was enough money to keep the newspaper afloat a few months longer. Robert J. Davis, who had recently become a member of Reporter's board, was so heartened by the public response that he agreed to continue his guaranteed bank loan of $25,000 in Reporter's favor and agreed to finance the paper up to $225,000 by buying stock of a corporation (the Bankrupt) into which Reporter could be merged. Reporter thereafter merged into the Bankrupt. Davis bought $156,000 of the Bankrupt's stock between April and September 1964. The paper's financial rally was fleeting. Infusions of capital were inadequate to withstand the mounting drain of operating losses. On September 27, 1964, the board announced the impending cessation of publication and relieved Davis of further obligation to buy stock. The paper died on September 30, 1964.
On September 28, 1964, Rose City, Davis, and DuBay (who had been a director of Reporter from 1961 to the merger) appointed a representative to collect the accounts receivable which they claimed were subject to their security interests. As of the time of adjudication $107,000 net had been collected from the receivables and was being held by the creditors' trio and the trustee. About two thirds of the collections came from display and classified advertising and the remainder from circulation accounts.
On October 15, 1964, wage claimants filed an involuntary bankruptcy petition against the Bankrupt and four days later it was adjudicated a bankrupt. In addition to the accounts receivable, the assets of the estate amount to about $14,000. Priority claims against the estate total over $54,000, general claims total about $80,000, and the claims here considered are, respectively, for DuBay, $25,000 principal; for Davis, $25,000 principal; and for Rose City, a total of $53,122.26 principal. Davis, DuBay, and Rose City do not here challenge the findings of the Referee that the Bankrupt had been insolvent during the four months prior to October 15, 1964, and that each of them knew or should have known of the insolvency.
The DuBay Claim
On June 26, 1962, DuBay executed a collateral agreement with the First National Bank of Oregon to secure the payment of a $25,000 loan made to Reporter by the bank. DuBay executed the agreement as an accommodation to Reporter; he received no personal benefit from the transaction. In order to secure DuBay against loss on his collateral agreement, Reporter and DuBay entered into a security agreement on July 31, 1962, under which Reporter agreed to assign advertising accounts receivable to DuBay which DuBay would from time to time select. Attached to the agreement was an executed formal assignment of 62 advertising accounts. The agreement
contains the following pertinent provisions:
'WHEREAS, Assignor desires to assign to Assignee accounts receivable which are unpaid but which are due and owing or which will become due for advertising services rendered by Assignor. * * *
'1. The Assignee will from time to time, during the continuance of this agreement, select such accounts receivable as shall total not more than $40,000 at any one time. * * *
'2. Concurrently with such selection the Assignor will, by proper instrument in writing, a form of which is attached hereto, unconditionally assign, transfer and set over to the Assignee, his successors and assigns, all of Assignor's rights, title and interest in said accounts. * * *
'* * * *res
'7. Any such assignment is for the sole purpose of providing security to Assignee upon his obligation under the agreement heretofore referred to and it is agreed that so long as Assignor is not in default Assignee shall not be entitled to the proceeds from any account periodically collected but the same shall remain the sole property of the Assignor.'
At regular intervals after July 31, 1962, as the originally listed accounts were collected, terminated, or returned as uncollectible, the Reporter's controller prepared and submitted memoranda to the board of Reporter and to DuBay listing accounts receivable totaling, at first $40,000, and later $35,000. DuBay's initials were placed next to the respective accounts in Reporter's books. The memoranda were not in the form of assignments or, indeed, in the form of any kind of agreement. The last memorandum in the series was dated April 21, 1964.
The Uniform Commercial Code took effect in Oregon on September 1, 1963. (Ore.Laws 1961, c. 726, § 428.) DuBay and Reporter filed a financing statement on September 30, 1963, showing an assignment of accounts receivable and proceeds to DuBay.
On February 27, 1964, DuBay gave written notice of termination of the Bankrupt's agency for collection of the advertising receivables in which he claimed a security interest. From February 27, 1964, to March 6, 1964, DuBay and other creditors claiming a security interest in the receivables collected the accounts. On the latter date Davis, DuBay, and Reporter entered an agreement affirming their prior agreements, releasing the sums collected on the accounts to Reporter, and renaming Reporter as their agent for collecting the accounts. On April 22, 1964, Reporter was merged into the Bankrupt and the Bankrupt assumed all of Reporter's rights and obligations. DuBay declared default and again terminated the agency for collection on September 28, 1964. Thereafter he collected directly from the debtors whose accounts he claimed had been assigned to him.
DuBay contends that he has a security interest, valid against the trustee, in the existing and future balances of the accounts of advertising debtors listed in the memorandum of April 21, 1964. To support that contention DuBay argues that the memorandum and the security agreement underlying it was an assignment of the fluctuating balances of the future accounts the validity of which should be tested under the Commercial Code. Because the memorandum, standing alone, is neither an agreement nor an assignment, DuBay must pin the memorandum to a security agreement. The only security agreement he had was the contract of July 31, 1962. His threshold difficulty is that the...
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