Seaboard Small Loan Corporation v. Ottinger

• Decision Date: 17 June 1931
• Docket Number: No. 3129.,3129.
• Citation: 77 ALR 956,50 F.2d 856
• Parties: SEABOARD SMALL LOAN CORPORATION et al. v. OTTINGER.
• Court: U.S. Court of Appeals — Fourth Circuit

77 ALR 956, 50 F.2d 856 (1931)

SEABOARD SMALL LOAN CORPORATION et al. v. OTTINGER.

No. 3129.

Circuit Court of Appeals, Fourth Circuit.

June 17, 1931.

W. Warren Dickerson, of Roanoke, Va., for appellants.

A. S. Hester, of Lynchburg, Va., for appellee.

Before PARKER and SOPER, Circuit Judges, and COCHRAN, District Judge.

PARKER, Circuit Judge.

On December 24, 1929, one D. P. Ottinger, an employee of the Norfolk & Western Railway Company, borrowed of the Seaboard Small Loan Corporation of Lynchburg, Va., the sum of $50, giving as security for the loan a deed of trust on certain personal property and executing an assignment of 10 per cent. of his monthly wages for a period of forty months. This assignment provided that copy should not be served upon the railway company so long as there should be no default in the monthly payments provided for. Four payments on the debt left a balance due on May 30, 1930, of $30. On June 19th Ottinger filed a voluntary petition in bankruptcy and was duly adjudged a bankrupt; the debt due to the loan corporation being properly scheduled among his liabilities. He filed petition for discharge on September 15, 1930, and discharge was granted on November 4th.

After filing petition in bankruptcy, Ottinger made no further payments on the debt due the loan corporation; and it thereupon proceeded, on July 28, 1930, to file with the railway company copy of the assignment of wages and to demand that 10 per cent. of the monthly wages of Ottinger be retained and paid to it thereunder. This suit was then instituted by Ottinger to enjoin the loan corporation and its treasurer from interfering with the wages due him by the railway company and to require them to withdraw the assignment order filed with the company. Defendants answered, challenging the jurisdiction of the court and asserting a lien on the wages of Ottinger under the assignment order, notwithstanding the adjudication of bankruptcy or any discharge that might be granted. Discharge was granted Ottinger while the matter of the injunction was pending. Thereafter, on November 15th, the District Judge granted the injunction prayed, and the defendants appealed. The appeal presents two questions for our consideration: (1) Whether after the adjudication and discharge in bankruptcy there was any lien by reason of the assignment order on the wages earned by the bankrupt; and (2) if not, whether the court below had jurisdiction to enjoin the loan company and its treasurer from attempting, by the assertion of the lien, to collect a debt discharged by the bankruptcy.

On the first question, it is clear that there was no lien by reason of the assignment order on wages earned by the bankrupt subsequent to the adjudication of bankruptcy. The rule is that an assignment of wages to be earned in the future is not good at law because ineffective to pass legal title, but will be enforced in equity. It is enforced in equity, not as a conveyance in præsenti of what manifestly does not exist, but because it is regarded in equity as a contract to take effect and attach to the wages assigned as soon as they come in esse. Until the wages are earned, it is regarded as an agreement to convey; after that time as a conveyance. Emerson v. European & N. A. R. Co., 67 Me. 387, 391, 24 Am. Rep. 39, 41; Rodijkeit v. Andrews, 74 Ohio St. 104, 77 N. E. 747, 6 Ann. Cas. 761, 5 L. R. A. (N. S.) 564 and note. The assignment in this case did not, therefore, create a lien upon the wages of the bankrupt at the time it was executed, but such lien was to arise at the time the wages should be earned. Until then the assignment was no more than a contract of the bankrupt, the obligation of which was discharged by the bankruptcy in the same way that his other personal obligations were discharged.

It is true that the rights of lienors under existing liens not forbidden by the Bankruptcy Act are preserved by that act; but the trouble here is that there was no lien on the wages in question existing at the time of the filing of the petition in bankruptcy. The loan company held nothing but a debt against the bankrupt and a contract providing for the creation of a lien in the future when wages should be earned. Before this contract could give rise to a lien, its obligation was discharged by the bankruptcy; and the debt, without which no lien could exist, was discharged also. A few cases have held that under such circumstances the assignment will be enforced notwithstanding the bankruptcy of the assignor. Mallin v. Wenham, 209 Ill. 252, 70 N. E. 564, 65 L. R. A. 602, 101 Am. St. Rep. 233; Citizens' Loan Ass'n v. Boston & Maine Railroad, 196 Mass. 528, 82 N. E. 696, 14 L. R. A. (N. S.) 1025, 124 Am. St. Rep. 584, 13 Ann. Cas. 365. But, with due respect to the courts so holding, we do not think the decisions are sound. The weight of reason and authority is to the contrary. In re West (D. C.) 128 F. 205, 206; In re Karns (D. C.) 148 F. 143; In re Home Discount Co. (D. C.) 147 F. 538, 547; In re Ludeke (D. C.) 171 F. 292; Progressive B. & L. Ass'n v. Hall (C. C. A. 4th) 220 F. 45; Levi v. Loevenhart & Co., 138 Ky. 133, 127 S. W. 748, 749, 30 L. R. A. (N. S.) 375, 137 Am. St. Rep. 377; Leitch v. Northern Pac. R. Co., 95 Minn. 35, 103 N. W. 704, 5 Ann. Cas. 63; 7 C. J. 411; note 14 L. R. A. (N. S.) 1025 et seq.

The leading case upon the subject is In re West, supra, decided in 1904 by Judge Bellinger of the district of Oregon. He thus clearly and concisely states the principles applicable: "The theory of a lien upon the earnings of future labor is not that it attaches to such earnings from the moment of contract of pledge or assignment, but from the moment of their existence. It is needless to say that there can be no lien upon what does not exist. A pledge or assignment of future wages under an existing employment is said to create an equitable interest in such wages. Stott v. Franey, 20 Or. 410, 26 P. 271, 23 Am. St. Rep. 132. This is true of wages earned upon a general employment, as well as those earned upon a definite contract. In this case the railroad company was under no obligation to employ the bankrupt, nor he to work for the company. If future earnings in such a case can be said to have a potential existence, they are the subject of an agreement for a lien; but the lien, or the so-called equitable interest, does not attach until the wages come into existence, and until the lien does attach there is no lien. The discharge in bankruptcy operated to discharge these obligations as of the date of the adjudication, so that the obligations were discharged before the wages intended as security were in existence. The law does not continue an obligation in order that there may be a lien, but only does so because there is one. The effect of the discharge upon the prospective liens was the same as though the debts had been paid before the assigned wages were earned. The wages earned after the adjudication became the property of the bankrupt clear of the claims of all creditors. Collier on Bankruptcy, 509. These debts cannot escape the operation of the bankruptcy law by an agreement for a lien upon what the debtor expected to earn, but did not earn until after the adjudication of bankruptcy."

In the case of In re Home Discount Co., supra, Judge Jones of the Northern district of Alabama made exhaustive investigation of the subject, with special reference to the purpose and intent of the bankruptcy law with relation thereto, and we agree with his statement of the law. Said he:

"The effect of the assignment, without regard to its infirmities under the local statute, is avoided by the provisions of the bankruptcy law as to wages earned after the filing of the petition. The power or ability of the debtor to earn wages in the future under a subsisting contract, standing apart from anything which it has brought into existence as property, is the mere right of the...