Grise v. White

• Decision Date: 16 April 1969
• Parties: , 6 UCC Rep.Serv. 391 Lionel A. GRISE, Jr. v. Francis H. WHITE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 385

247 N.E.2d 385

355 Mass. 698, 6 UCC Rep.Serv. 391

Lionel A. GRISE, Jr. v. Francis H. WHITE.

Supreme Judicial Court of Massachusetts, Norfolk.

Argued March 7, 1969.

Decided April 16, 1969.

Stuart DeBard, Boston, for plaintiff.

Allen Goodman, Boston, (Michael H. Rudy, Lowell, with him) for Dennis Acceptance Corp.

Before WILKINS, C.J., and SPALDING, WHITTEMORE, CUTTER and KIRK, JJ.

CUTTER, Justice.

This case is a further stage in the proceeding by trustee process before this court in Grise v. White, 351 Mass. 427, 221 N.E.2d 874. This court there sustained exceptions to an order discharging as trustee Universal Underwriters Insurance Company (Universal) which owed White an amount determined as a consequence of our decision in White v. Universal Underwriters Ins. Co., 347 Mass. 367, 197 N.E.2d 868. The case is before us, as it was before the trial judge, on a statement of agreed facts and two stipulations (in part about what 'may be considered as evidence'). The trial judge decided that Dennis Acceptance Company (Dennis) was entitled to $14,995 in the hands of Universal as trustee in the circumstances stated below. Grise presents for our consideration his exceptions to the judge's rulings and order upon Grise's motion to charge the trustee.

On July 29, 1963, White for value assigned to Albert M. Slater his claim in equity, or cause of action, against Universal. This assignment could be found to have been given to secure a note of White and others to Slater for $26,888.

Slater on August 5, 1964, assigned without recourse his interest in the assignment of this claim and another to Mr. Bernard V. Martin, attorney for Emil DiPlacido, to whom it could be found that White already owed $66,000. It could be found also that Mr. Martin paid Slater $500 for this assignment. Slater also assigned his interest in (a) a note given to him by White and others; (b) a pledge agreement given to secure that note; and (c) in a security agreement given by Mathew J. Dailey & Company Inc. No financing statement under art. 9 of G.L. c. 106 (the Uniform Commercial Code), if one was required, was filed concerning White's assignment to Slater, or concerning Slater's assignment to Mr. Martin.

On May 27, 1964 (after the assignment to Slater and before Slater's assignment to Mr. Martin), Grise made an attachment, under a special precept, of White's claim against Universal. He then had actual notice of White's assignment to Slater.

On August 6, 1964, White made an assignment to Dennis of the same claim by him against Universal to secure the payment of a note of $16,280, no part of which has been paid. This assignment from White to Dennis contains a covenant by White that he 'has made no previous assignment of * * * (the claim) to any person.'

On August 7, 1964, Mr. Martin executed a document entitled 'Subordination Agreement,' reciting that it was his 'intention to subordinate any and all securities which I may have * * * (by the assignment from Slater to him) to any and all claims by Dennis.' ¹ Neither the claim of Slater nor that of Mr. Martin has gone to judgment.

Grise has a finding of $8,000 in his favor which can be satisfied only by charging Universal as trustee in this proceeding. As trustee Universal holds $14,995 for Grise, Dennis, or Mr. Martin, as they may be entitled, respectively, to collect this sum or any portion of it. The amount unpaid to Dennis by White and the amount owing by White to Mr. Martin (on the note assigned to him by Slater alone) are each in excess of the sum of $14,995 held by Universal as trustee.

On this state of facts two principal questions arise: (1) Did Slater effectively transfer to Mr. Martin his priority in the security interest under the assignment to him from White as against Grise, who had knowledge of the assignment to Slater? (2) Was the subordination agreement effective to permit Dennis to stand in Mr. Martin's shoes in collecting from the fund in Universal's hands the amount of Mr. Martin's subordinated assigned security interest? We, of course, had no occasion to consider in the earlier Grise case, 351 Mass. 427, 432, 221 N.E.2d 874, the matter of priorities among Slater, Mr. Martin, Grise, and Ennis.

1. Apart from the Uniform Commercial Code, there can be no doubt that the assignment to Slater by White, for value, of his claim against the trustee, Universal, will prevail against Grise, a later attaching creditor. Grise in addition had knowledge of the assignment. See Commercial Cas. Ins. Co. of Newark, N.J., v. Murphy, 282 Mass. 100, 104, 184 N.E. 434. See also Aetna Cas. & Sur. Co. v. Harvard Trust Co., 344 Mass. 160, 168, 181 N.E.2d 673; McLaughlin v. New England Tel. & Tel. Co., 345 Mass. 555, 563, 188 N.E.2d 552. There is no merit to the argument by Grise in his brief, based upon White v. Coleman, 127 Mass. 34; Id., 130 Mass. 316, that the assignment from White to Slater never became effective. White v. Coleman dealt with a mere order, twice interpreted by this court not to constitute an assignment. Here Grise has agreed (and not by a mere stipulation as to evidence) that White 'assigned a cause of action to * * * Slater on July 29, 1963, for value.'

The Uniform Commercial Code, if applicable at all (see G.L. c. 106, § 9--104 (h), (k), but see § 9--106), a matter which we need not decide, does not change this result, even though no financing statement (see §§ 9--302, 9--303 (1)) was filed. Because of Grise's knowledge of the assignment by White to Slater, that assignment, even if not perfected, did not become subordinate to Grise's attachment. By § 9--301(1), 'an unperfected security interest is subordinate to the rights of * * * (b) a person who becomes a lien creditor without knowledge of the security interest and before it is perfected' (emphasis supplied). ² See Re Komfo Prod. Corp., 247 F.Supp. 229, 233--236 (E.D.Pa.); Gray v. Raper, 115 Ga.App. 600, 601--602, 155 S.E.2d 670. Cf. Bloom v. Hilty, 427 Pa. 463, 468--471, 234 A.2d 860. Grise in his brief does not appear to make any contrary contention.

Under general principles the assignee (from a first assignee) of an assigned claim steps into the shoes of his assignor as to priorities. This has been held to be the situation as to a perfected security interest under the code, G.L. c. 106, § 9--302(2), even if the later assignee makes no new filing. French Lumber Co., Inc. v. Commercial Realty & Fin. Co., Inc., 346 Mass. 716, 719, 195 N.E.2d 507. Upon the present facts we think that the same result must be reached as to the unperfected interest of Mr. Martin in view of Grise's knowledge of the original unperfected interest of Slater. We hold that the new assignment (of Slater's claim against White) by Slater to Mr. Martin put Mr. Martin in the same position Slater was in as against Grise, whose attachment was subject to the original assignment. ³

2. The subordination agreement (fn. 1) subordinated Mr. Martin's interest in the assignment from White to Slater to the interests of Dennis. The agreement did not in terms assign to Dennis the interests of Mr. Martin. The authorities cited later in this opinion show, however, that such agreements have generally been construed, at least where there is a limited fund available to satisfy multiple claimants as in bankruptcy, as putting the holder of the claim thereby given priority (here Dennis) in the position of asserting (to the extent warranted in the particular circumstances) the same priority which the subordinator (here Mr. Martin) himself could have asserted.

The holder of the subordinated claim (here Mr. Martin) intends to relinquish his position only to and for the benefit of one creditor (or sometimes a class of creditors) of the common debtor. As against the rest of the world the subordinator obviously desires to preserve his priority position (see Coogan-Hogan-Vagts, Secured Transactions under U.C.C., § 23.08, p. 2386) and particularly against all other claims or interests junior to his. This is in order that, after there has been satisfied the interest (here that of Dennis) which has been given priority by the subordination agreement, the subordinator may assert his own claim (to the extent at least of its remaining priority). This result, in general, can be achieved by putting the holder of the interest (here Dennis) who is given new priority in the same position (to the extent of the subordination) which the subordinator (here Mr. Martin) had as against creditors having intermediate priority, such as Grise (or as against those of equal priority with the subordinator, apart from the subordination agreement).

Such questions concerning the distribution of limited funds among competing creditors most frequently arise in bankruptcy. The bankruptcy courts have generally given a broad effect to subordination agreements to accomplish the result they deem to have deen intended by the parties. See e.g. Matter of Credit Indus. Corp., 366 F.2d 402, 408--410 (2d Cir.), and authorities collected in 3A Collier, Bankruptcy (14th ed. and 1968 Suppl.) § 65.06; Gilmore, Security Interests in Personal Property, §§ 37.1--37.3; Coogan-Hogan-Vagts, Secured Transactions under U.C.C., §§ 23.01--23.02, 23.08. This has been done even in cases involving very simple subordination agreements. See e.g. Re Dodge-Freedman Poultry Co., 148 F.Supp. 647, 649--652 (D.N.H.), affd. 244 F.2d 314 (1st Cir.). There F, president and principal stockholder of a debtor corporation, merely subordinated his claims against the debtor to the claims of D. another creditor of the debtor. F attempted to waive his claim to to the claims of D, another creditor of the being distributed in the bankruptcy court. The judge (pp. 650--651) rejected the contention that the subordination effected an equitable assignment of, or equitable lien upon, the dividend to which F would be entitled. He concluded, however, that the purpose of the subordination agreement was that D's claim should be paid, and held that...