Godwin v. Murchison Nat. Bank

• Decision Date: 30 October 1907
• Citation: 59 S.E. 154,145 N.C. 320
• Parties: GODWIN et al. v. MURCHISON NAT. BANK et al.
• Court: North Carolina Supreme Court

59 S.E. 154

145 N.C. 320

GODWIN et al. v. MURCHISON NAT. BANK et al.

Supreme Court of North Carolina

October 30, 1907

Appeal from Superior Court, Harnett County; E. B. Jones, Judge.

Action by R. L. Godwin and others, as trustees in bankruptcy of E F. Young, against the Murchison National Bank and others. From a judgment in favor of plaintiffs, defendant bank appeals. Reversed.

Where a bankrupt made a present equitable assignment for a cash consideration of certain bonds, which he was to receive in payment for land, the bonds to be delivered or transferred to defendant when they came into the bankrupt's possession and to be then appropriated to the bankrupt's indebtedness as far as they would pay the same, the sale of the land having been completed according to the contract, the bank's right to the bonds as the proceeds of the sale was not affected by the registration laws concerning sales of realty.

The action was brought by the trustees in the matter of E. F Young, bankruptcy, to recover the interest of the bankruptcy's estate in $4,500 of Norfolk City bonds, said interest amounting to $3,150, as shown by the verdict, and under claim and allegation on the part of the trustee that the said bonds were transferred to defendant bank, under circumstances which made such transfer a voidable preference under the bankruptcy act, by reason of same having been made within four months prior to the filing of petition in bankruptcy, etc. Defendant bank, admitting that a written assignment of the bonds and actual delivery of same had been made within the four months as alleged, claimed that such action was not a voidable preference, by reason of the fact that same was in pursuance of a valid and binding agreement entered into prior to the four months, and which gave to defendant an unimpeachable title to the property. It was shown that proceedings of involuntary bankruptcy in Re E. F Young followed by adjudication were instituted on June 4, 1904; that the written assignment was made on February 9, 1904, delivery of bonds being made shortly thereafter, and within the four months as stated, and the alleged agreement was entered into on December 9, 1903, prior to four months. At that time the bonds in question had not been obtained or received by the bankrupt, but were to be turned over to him on payment of some real estate, which the bankrupt had theretofore sold to Chas. W. Priddy, incorporated, of Norfolk, Va.

On the trial issues were submitted and responded to by the jury, and judgment had thereon as follows: "(1) In what amount, if any, was E. F. Young indebted to defendant bank, February 9, 1904, by reason of indorsement or otherwise? Answer: $34,000. (2) Did E. F. Young within the period of four months immediately preceding June 4, 1904, transfer by writing to the defendant bank the $4,500 Norfolk City bonds, and, if so, what was the cash value of same? Answer. Yes, $4,400. (3) Was the said E. F. Young insolvent on February 9, 1904, and did he so continue up to and including June 4, 1904? Answer. Yes. (4) Did the defendant or its agents at the time of the transfer of the $4,500 Norfolk City bonds as alleged in the complaint have reasonable cause to believe that such transfer was intended as a preference to the defendant bank by said E. F. Young? Answer. Yes. (5) Did the defendant E. F. Young in December, 1903, agree verbally with the defendant to transfer to said bank the Norfolk City bonds of $4,500, if said defendant bank would loan the said E. F. Young for Merchants' & Farmers' Bank $10,000, and the South Dunn Manufacturing Company $10,000, and did the defendant bank make said loans as agreed? Answer. Yes. (6) Did E. F. Young in furtherance of the agreement of December, 1903, execute the paper writing of February 9, 1904? Answer. Yes. (7) Did the transfer of the $4,500 Norfolk City bonds to defendant bank enable the defendant bank to obtain a greater percentage of its debt against E. F. Young than other creditors in the same class as bank obtain? Answer. Yes. (8) What interest did E. F. Young have in the $4,400 received by the defendant bank from a sale of the Norfolk City bonds? Answer. $3,150, with interest from March 1, 1904, at 6 per cent. It having been admitted of record that petition in bankruptcy was duly filed against said E. F. Young on the 4th day of June, 1904, and that subsequently he was duly adjudged a bankrupt, and that the plaintiffs are the duly chosen, qualified, and now acting trustees of said Young in bankruptcy, and that the defendant is a duly chartered, organized, and existing banking institution under the laws of the United States, now, upon motion of the counsel for plaintiffs, it is considered, ordered, and adjudged that the plaintiffs in this action, R. L. Godwin, J. D. Barnes, and J. M. Hodges, trustees, do recover of the defendant in this action, the Murchison National Bank, the sum of $3,150 and interest on that sum from March 1, 1904, and the cost of this action to be taxed by the clerk of this court."

Thereupon defendant bank excepted and appealed.

Godwin & Davis, D. H. McLean, and R. L. Godwin, for plaintiff.

E. K. Bryan and Shepherd & Shepherd, for defendants.

HOKE J.

The verdict of the jury on the fifth and sixth issues was as follows: "(5) Did the defendant E. F. Young in December, 1903, agree verbally with the defendant bank to transfer to said bank the Norfolk City bonds of $4,500, if said defendant bank would loan the said E. F. Young for Merchants' & Farmers' Bank $10,000, and the South Dunn Manufacturing Company $10,000, and did the defendant bank make said loans as agreed? Answer. Yes. (6) Did E. F. Young in furtherance of the agreement of December, 1903, execute the paper writing of February 9, 1904? Answer. Yes." And the paper writing referred to and established by the sixth issue and the response thereto contains the following recital as to the agreement between defendant bank and E. F. Young, of date December, 1903, and more than four months prior to the institution of the proceedings in bankruptcy: "Witnesseth, that, whereas, the Merchants' & Farmers' Bank of Dunn, N. C., is indebted to the Murchison National Bank of Wilmington, N. C., in a large sum of money which was loaned to the Merchants' & Farmers' Bank and the South Dunn Mfg. Co., at the request of the party of the first part, and, whereas, at the time of said loans the party of the first part agreed with the said Murchison National Bank that, if it would make said loans, that the party of the first part had sold three brick stores in the town of Dunn, N. C., to one Chas. W. Priddy, incorporated, of Norfolk, Va., and that the deed of said stores was to be made when the abstracts of title for said stores had been approved by said Priddy (incorporated), and the purchase money was paid, and it was agreed by the said parties hereto that, if the said Murchison Bank would make said loans, the party of the first part would pay over the money derived from said sale, to wit, the sum of $4,500.00, to the party of the second part on account of the indebtedness then created to the said party of the second part, and, whereas, there has been more delay in consummating said sale than was anticipated, and the said party of the first part is desirous of carrying out said agreement: Now, therefore, in consideration of the premises, the said party of the first part doth hereby transfer and assign, sell, and convey to the said party of the second part all his right, title, interest, and estate in the three stores bargained to Priddy Co., Limited, and the purchase price thereof when same is received on the consummation of the sale." There is no allegation of fraud in the transaction between these parties in December, nor that the same was had with any intent to evade the general policy or express provisions of the bankruptcy act. This being true, on the facts established by these two findings, the court is of opinion that for a present cash consideration then passing a claim was created in favor of defendant to these bonds, the purchase price of the property referred to in the agreement, which attached as soon as they passed in consideration for the sale, good against the bankrupt himself, and enforceable in equity against the plaintiffs holding the estate as trustees under the bankruptcy proceedings, and there is nothing in the verdict on the other issues which destroys or impairs the force and effect of this position; the word "transfer" in the fourth issue evidently having the same significance as in the fifth.

It is accepted doctrine that as a general proposition the trustee in bankruptcy is vested with no better right or title to the property than the bankrupt had when the trustee's title accrued; and, unless in contravention of some established principle of law or public policy or some express provision of the bankruptcy act, a claim valid against the bankrupt will be upheld against his trustee. Mfg. Co. v Cassell, 201 U.S. 344-352, 26 S.Ct. 481, 50 L.Ed. 782; Hewit v. Berlin Machine Works, 194 U.S. 296, 24 S.Ct. 690, 48 L.Ed. 986; Smith v. Godwin (a decision at present term) 145 N.C. 242, 58 S.E. 1089; Loveland on Bankruptcy (2d Ed.) p. 368. As said in this last citation (Loveland, supra): "The trustee takes the title of the bankrupt subject to all equities, liens, or incumbrances, whether created by operation of...