In re Borok, 309.

• Decision Date: 18 May 1931
• Docket Number: No. 309.,309.
• Citation: 50 F.2d 75
• Parties: In re BOROK.
• Court: U.S. Court of Appeals — Second Circuit

50 F.2d 75 (1931)

In re BOROK.

No. 309.

Circuit Court of Appeals, Second Circuit.

May 18, 1931.

Archibald Palmer, of New York City (Sydney Basil Levy, of New York City, of counsel), for appellants.

Lewis, Marks & Kanter, of Brooklyn, N. Y. (Oscar A. Lewis and Lloyd B. Kanter, both of Brooklyn, N. Y., of counsel), for appellee.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

SWAN, Circuit Judge (after stating the facts as above).

The order appealed from permits the trustee to recover from an adverse claimant three classes of property: (1) Uncollected accounts receivable assigned to Mayerson prior to the bankruptcy petition as security for a loan; (2) moneys collected by Mayerson on assigned accounts after the bankruptcy petition was filed; and (3) moneys, including the proceeds of checks of the bankrupt's customers, which were delivered to Mayerson the day before the petition was filed. The chief question presented is whether the court had jurisdiction to grant such relief in summary proceedings.

It is argued by the trustee that, despite the assignment, all accounts outstanding on the date of the petition remained in the "possession" of the bankrupt and so fall within the doctrine of property in custodia legis, as to which the bankruptcy court has summary power. One cannot speak of "possession" of a chose in action in the same sense as of tangibles; but if such terminology is to be used it would seem that the bankrupt was as much in "possession" of the assigned accounts as he could be of any chose in action. He had the right to collect from the debtors and to use the proceeds as he saw fit. The debtors had received no notification of the assignment; and Mayerson, though the agreement declared him to be irrevocably constituted the assignor's attorney for collection, was not to use this power unless the assignor was in default under the agreement, and there is no suggestion that default had occurred prior to the filing of the petition. Under such circumstances we believe that the bankruptcy court has power to determine summarily the respective rights of the trustee and the assignee in respect to the assigned accounts outstanding at the date of the petition. So it was held by Judge Rellstab in In re Gottlieb & Co., 245 F. 139, 146 (D. C. N. J.), affirmed in 257 F. 72 (C. C. A. 3), without reference to this point.

That it is possible for a bankrupt to have "possession" of intangible property in such sense as to give the bankruptcy court summary jurisdiction over adverse claims, appears from numerous cases. Chicago Board of Trade v. Johnson, 264 U. S. 1, 44 S. Ct. 232, 68 L. Ed. 533; O'Dell v. Boyden, 150 F. 731, 10 Ann. Cas. 239 (C. C. A. 6); In re Ransford, 194 F. 658 (C. C. A. 6); Orinoco Iron Co. v. Metzel, 230 F. 40 (C. C. A. 6); In re Roman, 23 F.(2d) 556, 558 (C. C. A. 2). It is true that in Chicago Board of Trade v. Johnson, the Chief Justice said, at page 12 of 264 U. S., 44 S. Ct. 232, 234, of his opinion: "Membership on the Board of Trade is different from a mere chose in action, like a simple claim or debt asserted against another, and only to be enjoyed after its satisfaction or enforcement. It is a continuously enjoyed `incorporeal right.'"

There is an implication in these words that one cannot properly be said to be in possession of an ordinary debt or claim. But that was said in distinguishing the case from a suit by the trustee to collect a debt from a resisting debtor, which must certainly be by plenary action. A similar distinction may be made in the case at bar. Were the trustee attempting to collect the accounts from the bankrupt's debtors, he would have to resort to a plenary suit; he could not claim to be in "possession of the property," for existence of the property, i. e., a valid chose in action, is the issue in dispute. But where, as here, the debtor is not in an adverse attitude toward the bankrupt and the dispute is between the bankrupt's trustee and the claimant of a lien upon the debt, we think the debtor may be deemed to hold the debt for the bankrupt in the same sense that the Board of Trade held the seat for the bankrupt, and "possession" of the chose in action may be deemed to pass to the trustee in the one case as much as in the other. So the bankruptcy court may draw to itself the summary determination of which claimant is the proper obligee of the chose in action. This we suggested, though it was not decided, in Re Roman, supra.

The case of Copeland v. Martin, 182 F. 805 (C. C. A. 5) might, at first sight, appear to be opposed to this conclusion; but it differs in important respects. It involved an outright assignment rather than one for security, the debtor had been notified of the assignment, and no right to collect was reserved to the assignor. It would seem that complete title and "possession" of the chose in action had been transferred to the assignee before the bankruptcy. In re Paramount Fireproof Door Co., 43 F.(2d) 558 (D. C. E. D. N. Y.), relied upon by the appellant, was also a case where the debtor had been notified of the assignment, and apparently the assignor had not retained the right to collect for his own use. These cases are not, therefore, inconsistent with the views we have expressed.

Having found that the bankruptcy court had jurisdiction to determine claims to the accounts outstanding on the date of the petition in bankruptcy, we pass to the validity of the assignment to Mayerson. Under the doctrine of Benedict v. Ratner, 268 U. S. 353, 45 S. Ct. 566, 69 L. Ed. 991, the assignment was void and ineffective to create a lien on the accounts receivable. There is no dispute that the assignor retained complete dominion over them. It is argued that he was obligated to substitute new accounts for those collected, but neither the terms of the agreement nor the conduct of the parties bear out any such contention. It is futile to talk of substitution where the assignor had agreed to assign, and did assign...