In re Bird

• Decision Date: 27 June 1910
• Citation: 180 F. 229
• Parties: In re BIRD.
• Court: U.S. District Court — District of Minnesota

180 F. 229

In re BIRD.

United States District Court, D. Minnesota, Fourth Division.

June 27, 1910

Dodge &amp Webber, for creditors.

Welch Hayne & Hubachek, for Armstrong Piano Co.

WILLARD District Judge.

On April 8, 1908, a petition for involuntary bankruptcy was filed against Bird, and he was adjudicated a bankrupt on the 5th day of May, 1908. On June 9, 1906, the Northwestern National Bank of Minneapolis had in its possession a large quantity of promissory notes and conditional sale contracts belonging to Bird, which notes and contracts had been pledged to the bank by Bird, to secure the payment of a debt owing to the bank by him. On the same day-- June 9, 1906-- almost two years before the petition in bankruptcy was filed, Bird and the Foster-Armstrong Company made the following contract in writing:

'For the consideration of one dollar and other valuable consideration, I hereby assign all my right, title, and interest in the equity of collateral paper held by the Northwestern National Bank of Minneapolis, Minn., against my loan of present date amounting approximately to four thousand three hundred seventy-eight dollars ($4,378) and interest due and accruing thereon, to the Armstrong Piano Company of Rochester, N.Y., and hereby guarantee the payment of same together with interest, cost of collection and attorney fees at maturity or any time thereafter. I further agree that, should any of the instruments be repossessed and be resold, should any deficiency arise by reason of such sale, to pay same, together with all costs of repossession and sale, and hereby waive notice of nonpayment, demand, notice of protest and suit against the signer, and agree that any extension which may be granted to the maker thereof shall not in any manner release the undersigned. Equity referred to shall be determined only after said bank shall have their loan and all interest due thereon fully satisfied. I further agree and guarantee to the Armstrong Piano Company, that the said equity shall net not less than one thousand dollars and interest thereon, and it is further agreed and understood that, should said equity net in full claim of Armstrong Piano Co. amounting to $1,920 and interest due thereon, the surplus remaining thereafter shall be returned to me.

'Dated this ninth day of June nineteen hundred six, at Minneapolis, Minn.

'Francis J. Bird. (Seal.) 'Armstrong Piano Co., 'J. H. Shale, Treas.

'Witness: May A. Smith.'

To this contract was attached and made a part thereof a list of the notes and accounts therein referred to. Before signing the contract the agent of the Foster-Armstrong Company went with Bird to the Northwestern Bank, and there examined all of the notes and contracts, made a list thereof, and ascertained the amounts that had been paid thereon. After the contract was signed a copy of it was left with the Northwestern Bank, and the officer in charge of the matter refused to accept the contract; but that refusal of course could not in any way affect the rights of either Bird or of the creditor. Since June 9, 1906, the bank has collected from the notes and contracts sufficient money to pay its claim against Bird, except the sum of $165.82, and on October 3, 1908, upon a petition of the Foster-Armstrong Company made in this bankruptcy proceeding, the bank disclosed that it had in its possession the notes and contracts mentioned and described in a certain Exhibit A, and that the balance of its said claim against said bankrupt was at that time the sum of $165.82. The bank then and there agreed to turn over and did turn over to the trustee in bankruptcy the notes and contracts described in said exhibit, it being then and there also agreed by all of the parties that said trustee should take the whole sum of the proceeds thereof, and pay the bank $165.82, and hold the balance for such person or persons as might by the court be found to be entitled thereto. The Foster-Armstrong Company has filed its petition in this proceeding, asking for an order directing that the said notes and contracts be turned over to the trustee, or such sums as have been collected thereon be turned over or paid to it. A hearing was had upon such petition, the referee made an order granting the prayer thereof, and that order the trustee is now seeking to have reviewed, his claim being that the transaction constituted a preference voidable under section 60 of the bankrupt act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3446)).

The bankrupt testified on the hearing that he signed the contract and delivered it to the creditor, merely to be used by the creditor in certain negotiations with the Northwestern Bank, and that it was to be returned by him if those negotiations failed. This was denied by the agent of the creditor who conducted the transaction for it. It is apparent that the testimony of the bankrupt is entirely insufficient to defeat this contract which on its face was a present transfer of the bankrupt's interest in this property. On the part of the creditor testimony was given by said agent to the effect that the document was taken in full settlement of its claim against Bird. This testimony contradicts the plain terms of the contract, for it is therein said that any surplus remaining after the debt to this creditor was paid should be turned over to Bird. The testimony therefore was incompetent. The trustee claims that that part of the contract which says, 'Equity referred to above shall be determined only after said bank shall have their loan and all interest due thereon fully satisfied,' indicated that this contract of assignment was not to take effect until after the bank had been paid in full.

It is somewhat difficult to determine why that clause was inserted in the contract, but in no event can it have the effect of destroying the absolute assignment made in the first part of the contract, which by its terms took effect at once. It probably was inserted merely to indicate that the creditor should have no claim upon any of the notes or contracts until the bank had been paid in full. The document must therefore be taken as it stands. In legal effect it was a transfer and assignment on June 9, 1906, of all the interest which Bird had in the personal property then in the possession of the Northwestern Bank as security for a debt then due from Bird to the Armstrong Company. It was in fact a second pledge to one creditor of personal property already pledged to another creditor. That such a contract as this is entirely valid at the common law does not admit of doubt. That it was a valid contract under the laws of Minnesota is equally clear. The statutes of Minnesota (Rev. Laws 1905, Sec. 4302), provide that the interest of the pledgor can be levied upon and sold under execution. If that is true, it is certainly true that a pledgor himself can convey his interest in the pledged property. The trustee claims, however, that whatever may have been the legality of this transaction at common law, and under the laws of Minnesota, it is provided in the bankrupt law, and particularly in the last part of section 60a, as amended by Act. Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (U.S. Comp. St. Supp. 1909, p. 1314), that:

'Where the preference consists of a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.'

There is nothing in the law of Minnesota which requires the recording or registering of a transfer by a pledgor of his interest in the property pledged. But section 3b of the act provides that:

'Such time shall not expire until four months after the date of the recording or registering of the transfer or assignment. * * * If by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive or continuous possession of the property, unless the petitioning creditors have received actual notice of such transfer or assignment.'

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