Israel v. Woodruff

• Decision Date: 15 May 1924
• Docket Number: 299.
• Citation: 299 F. 454
• Parties: ISRAEL v. WOODRUFF et al.
• Court: U.S. Court of Appeals — Second Circuit

299 F. 454

ISRAEL v. WOODRUFF et al.

No. 299.

United States Court of Appeals, Second Circuit.

May 15, 1924

Julian Hartridge, of New York City, for appellant.

Hunt Hill & Betts, of New York City (Robert McLeod Jackson, of New York City, of counsel), for appellees.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

MANTON Circuit Judge.

The appellant seeks in this suit to recover from the appellees alleged preferential payments made prior to bankruptcy. The report of the special master, confirmed by the District Judge, held that the appellees at the time of receiving certain payments had reasonable cause to believe that Sullivan, Young & Russlend, Inc., the maker of the payments and for whom the appellant is trustee in bankruptcy, was insolvent. It was held that the appellant should recover certain of these payments, but that the appellees were entitled to some credits, which exceeded the amount of the payments and therefore a judgment was given for the appellees dismissing the bill of complaint.

In May 1919, the appellees loaned to Sullivan, Young & Russlend, Inc., $25,000, and took as security the notes of this corporation, indorsed individually by Messrs. Sullivan, Young, and Russlend. They also took a bill of sale for certain potatoes, then fully paid for, and in storage on three lighters of the Jarvis Lighterage Company. Delivery slips or orders on the Jarvis Lighterage Company were given, and the appellees by letter dated May 22, 1919, sent these delivery orders to the Jarvis Lighterage Company, and asked them to hold the potatoes for the time on the appellees' account and subject to their orders. Thereafter the appellees arranged with Sullivan, Young & Russlend, Inc., to sell the three lighter loads of potatoes for the appellees' account, and directed the Jarvis Lighterage Company to turn the potatoes over to them, which was done. On July 1, 1919, Sullivan, Young & Russlend, Inc., was insolvent and filed a petition in bankruptcy.

The court below found that the appellees had on and at all times after July 1, 1919, reasonable cause to believe that Sullivan, Young & Russlend, Inc., was insolvent. It appears that certain payments on account of this loan were made prior to July 1, 1919, and that after that date the balance of this loan was repaid. The court allowed the appellant to recover all payments made after July 1st, excepting the payments made from the sale of the three lighters of potatoes, which were held to be a trust fund, to be used for the repayment of the loan of $25,000. It was found below that Sullivan, Young & Russlend, Inc., received a net sum from the proceeds of the pledged potatoes in excess of the amount of the payments which it had made to the appellees after July 1, 1919; that is to say, in excess of the alleged preferential payments.

The court held that the three lighter loads of potatoes had been validly pledged to the appellees as collateral security for the loan; that when the appellees instructed the Lighterage Company, in whose custody they were, to turn the potatoes back to Sullivan, Young & Russlend, Inc., to sell for appellees' account, their rights as pledgees were not lost; that the bankrupt received the potatoes in trust for the sole purpose of selling them for the appellees' account; that the appellees were entitled to retain the payments to the extent of the net proceeds received from the potatoes; that, the bankrupt having so sold them and received more, as the net proceeds thereof, than the amount of the alleged preferential payment, the appellant is not entitled to recover. It is the contention of the appellant that, even if the bankrupt had received more from the potatoes than the alleged preference, yet the appellees were not entitled to retain any part of the proceeds, except such as could be traced into the bankrupt's bank accounts and shown to have remained there until paid over to the appellees. It is further contended by the appellant that the potatoes were not turned over to the bankrupt to sell for the appellees' account, and that therefore no trust fund existed as to the proceeds.

We agree with the finding below that the three lighter loads of potatoes were pledged to the appellees as collateral security for the loan. There was a transfer of the right of possession to the three lighter loads by the bankrupt, accompanied by the delivery of orders for the potatoes on the Jarvis Lighterage Company, in whose custody they were. This was sufficient to constitute a pledge thereof. There was no need of an actual manual delivery of the potatoes. The mode of delivery may be according to the nature of the property. In the case of large bulk, manual delivery would be inconvenient, and constructive or symbolic delivery, such as an order or by the delivery of a bill of lading, is sufficient. If the property is committed by the pledgor to the exclusive control and charge of the pledgee, especially if this is followed by an act of dominion or possession by the pledgee or his agent, this will suffice. Casey v. Cavaroc, 96 U.S. 467, 24 L.Ed. 779.

It appears that the potatoes were returned to the bankrupt for the sole purpose of selling them for the account of the appellees. This direction to sell for the appellees' account was given in a series of letters, with directions to remit the proceeds. The bankrupt sent a report of the sales and part of the proceeds. Indeed, it is...