Lone Star Cement Corporation v. Swartwout

• Decision Date: 04 January 1938
• Docket Number: No. 4233,4247.,4233
• Parties: LONE STAR CEMENT CORPORATION v. SWARTWOUT et al. (two cases). In re RICHMOND LUMBER CO.
• Court: U.S. Court of Appeals — Fourth Circuit

93 F.2d 767 (1938)

LONE STAR CEMENT CORPORATION v. SWARTWOUT et al. (two cases).

In re RICHMOND LUMBER CO.

Nos. 4233, 4247.

Circuit Court of Appeals, Fourth Circuit.

January 4, 1938.

Before PARKER and SOPER, Circuit Judges, and COLEMAN, District Judge.

Walter M. Evans, of Richmond, Va., for appellant.

William A. Moncure, Jr., of Richmond, Va., for appellees.

SOPER, Circuit Judge.

The Lone Star Cement Corporation appeals from a decision of the District Court rendered in the bankruptcy proceeding of the Richmond Lumber Company, Inc., in which the claim of the Cement Corporation that it held an assignment of certain moneys and accounts receivable of the Lumber Company was denied. The Lumber Company had been engaged in the building material and supply business upon a considerable scale. On or about September 10, 1935, it entered into an oral contract to purchase from the Cement Corporation the cement that the Lumber Company would need to comply with a contract between it and the Works Progress Administration of the federal government. At that time the Cement Corporation, knowing that the Lumber Company was in a precarious financial condition, was unwilling to sell the goods on open account, and it was therefore orally agreed that the cement to be furnished by the Cement Corporation would be used only by the Lumber Company to comply with its government contract, and that the money received in payment from the government, less the profit accruing to the Lumber Company from the transaction, would be applied solely to the payment of the Cement Corporation's account.

The terms of this contract were performed by both parties. Subsequently, similar agreements were made between the corporations with reference to cement needed for several other WPA projects upon which the Lumber Company had become the successful bidder. Under these contracts, the Cement Corporation furnished merchandise to the Lumber Company until January 16, 1936, when shipments ceased because the Lumber Company was delinquent in its payments. The Lumber Company was then indebted to the Cement Corporation in the sum of $1,931.78, all of which except $286.91 represented goods supplied to the WPA projects. On March 10, 1936, at a conference between the parties it transpired that the Lumber Company had collected in full from the government but had used the proceeds to meet its pay rolls and other operating expenses. The Cement Corporation was therefore unwilling to continue shipments of material without some assurance not only that it would receive payment for the past indebtedness but that the Lumber Company would pay for future shipments of goods for WPA projects out of moneys paid to it by the government as soon as received. Accordingly, the Lumber Company renewed its oral promise to apply moneys received from the United States to the payment for material furnished on the federal projects. It also paid the sum of $505.36 on account, and promised to pay the balance of the debt from the proceeds of certain accounts receivable recorded on ledger sheets exhibited to representatives of the Cement Corporation with the statement that payment thereof was expected in three or four weeks in amounts much more than sufficient to pay the past-due indebtedness. The accounts exhibited aggregated the sum of approximately $7,600, but the evidence does not definitely indicate the number or identity of the accounts except as to three, aggregating approximately $6,400.

The accounts receivable on the ledger sheets were not marked with the name of the Cement Corporation; nor was there any other writing indicating that they had been assigned to the Cement Corporation. The debtors were not notified that the accounts had been assigned, and no other attempt was made to restrict or limit the control of the Lumber Company over the accounts or the proceeds thereof. Dependence was placed solely on the promise of the Lumber Company, although it had previously failed to keep its former promise of a similar character. During the whole period under consideration, the Lumber Company was believed by the parties to the agreements and to the trade generally to be insolvent, and was in fact in such a condition.

Subsequent to the agreement of March 10, 1936, the Cement Corporation resumed shipments, and when the petition in bankruptcy was filed on May 22, 1936, an added debt of $1,027.30 had been accumulated. During the same period the Lumber Company collected all the money due it by the government on WPA accounts, and also the sum of $3,129.87 upon the three accounts receivable above mentioned, but paid no part of these moneys to the Cement Corporation. Its indebtedness to the Cement Corporation was however reduced by the sum of $479.70 through the return of cement sacks, so that the balance due at the date of bankruptcy was $1,974.02. A lien is claimed for the payment of $1,959.31 of this amount; the balance being represented by goods supplied for other than government projects, less credits allowed for the return of cement sacks.

The Cement Corporation claims that the agreements described created (1) an equitable assignment of the moneys received by the Lumber Company from the United States, impressing them with an equitable lien to secure the payment of the debt, and (2) an assignment of the accounts receivable above described impressing a lien upon them and upon such proceeds thereof as may have been collected or may hereafter be collected by the bankrupt or the representatives of the bankrupt estate.

So far as the claim relates to moneys collected by the Lumber Company before bankruptcy, little need be said because the record fails to show that anything came into the hands of the receiver or trustee in bankruptcy to which the asserted lien could attach. East Side Packing Co. v. Fahy Market, 2 Cir., 24 F.2d 644; Spellman v. Bankers' Trust Co., 2 Cir., 6 F.2d 799. It would also seem to be clear that the claim must fall in so far as it constitutes an attempt to secure preferential payment of an antecedent indebtedness through a contract creating an assignment of the accounts receivable or imposing a lien thereon executed at a time less than four months before bankruptcy when the debtor was known to be insolvent. The transaction of March 10, 1936, seems to have involved two elements; a promise by the debtor to pay his past indebtedness from the proceeds of the accounts receivable, and a promise by the debtor to pay for the goods to be subsequently shipped out of the proceeds of the sales to the WPA. In this view, no new consideration was given for the promise to pay the existing debt out of the accounts receivable, and the claim would be barred by section 60b of the National Bankruptcy Act, as amended, 11 U.S.C.A. § 96(b).

On the other hand, if it be assumed, as the claimant contends, that its promise to resume and continue the shipments was given only because the debtor made both of the promises above described and that thereby the claimant gave a new consideration sufficient to support an assignment or a lien, the claim must nevertheless be denied for a reason that goes to the heart of the transaction. There was no valid assignment of the accounts receivable. No particular phraseology is required to effect an assignment, and it may be either in oral or written form; but the intent to vest in the assignee a present right in the thing assigned must be manifested by some oral or...