East Side Packing Co. v. Fahy Market

• Decision Date: 05 March 1928
• Docket Number: No. 177.,177.
• Parties: EAST SIDE PACKING CO. v. FAHY MARKET. COMERFORD et al. v. EAST SIDE PACKING CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

24 F.2d 644 (1928)

EAST SIDE PACKING CO. v. FAHY MARKET.

COMERFORD et al. v. EAST SIDE PACKING CO. et al.

No. 177.

Circuit Court of Appeals, Second Circuit.

March 5, 1928.

James M. E. O'Grady, of Rochester, N. Y., for appellants.

John D. Lynn, of Rochester, N. Y., for appellees.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

MANTON, Circuit Judge.

A bill was filed by the complainant against the defendant for conservation and distribution of assets of the defendant. Receivers were appointed and claims were filed. A special master was also appointed, to take proof of the claims and to report. The appellants filed their claim, a preference was granted them by the special master, but later this preference was disallowed by the district court. However, the claimants were allowed to share with other general creditors.

Appellants are executors of the will of James G. Comerford. One is a son of the deceased. The stock of the defendant, a wholesale and retail provision house, was owned by his father, who conducted its business, and after his death the appellants continued to do so, retaining the ownership of the entire capital stock as executors. As executors, they loaned the defendant $15,000, upon the understanding that the loan would be repaid out of a mortgage negotiated to be placed on defendant's real property. The money thus advanced was used to pay defendant's debts, including some taxes on this real property. The mortgage was never placed, and no money was received from the loaning bank, because receivers were first appointed. There is no writing of the contemplated repayment of such money, if it was secured by the Fahy Market.

The claim filed by the executors states that the "advances by the executors of the Comerford estate to the market are made for the reason that the estate was at that time the owner of the entire capital stock of Fahy Market, and because it was promised and agreed that this $15,000 would be immediately repaid from an increased loan upon the corporation's real estate, amounting to the sum of $15,000, which loan had been arranged for and granted," and further that the executors "claim an equitable lien upon the equity of redemption in the real estate covered by the mortgage, and for a preference for the said advance and loan and repayment to the executors of the said amount and interest before any other sum is paid to any other creditor."

The record discloses that this promise to repay, out of such funds procured by placing the mortgage, rests entirely upon an oral understanding. Both executors, who are the claimants, said they paid the money over with the understanding at the time that the money would be returned to the estate when the mortgage was completed. An equitable assignment or equitable lien is said to be created in favor of the appellants. 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. Christmas v. Russell, 81 U. S. 69, 20 L. Ed. 762. This contemplates a fund; indeed, there must be designated a fund from which payment must be made. Dillon v. Barnard, 21 Wall. (88 U. S.) 430, 22 L. Ed. 673; Spellman v. Bankers' Trust Co. (C. C. A.) 6 F.(2d) 799; Thomas v. N. Y. & G. L. Ry. Co., 139 N. Y. 163, 34 N. E. 877.

In Walker v. Brown, 165 U. S. 654, 17 S. Ct. 453, 41 L. Ed. 865, where the Supreme Court had occasion to consider the question of the existence of an equitable lien, certain bonds were in the hands of a third party to secure an indebtedness to Walker. A letter was written, stating that any indebtedness that was owing to Walker at any time should be paid before the return of the bonds, or the value thereof, and that the bonds, or value thereof, "are at the risk of the business of Lloyd & Co., so far as any claim you may have against said Lloyd & Co. is concerned." The court pointed out that this language designated the bonds or their value as a security for the debt of Walker, and that "to dedicate property to a particular purpose, to provide that a specified creditor and that creditor alone shall be authorized to seek payment of his debt from the property or its value, is unmistakably to create an equitable lien."

In Ketchum v. St. Louis, 101 U. S. 306, 25 L. Ed. 999, which the Supreme Court referred to in Walker v. Brown as fully reviewing the English and American authorities on this subject, it was said: "The learned judge who heard this cause in the Circuit Court rested the decree upon the proposition of law that, `if a debtor by a concluded agreement with a creditor sets apart a specific amount of a specific...