MANUFACTURERS'FINANCE CORPORATION v. Vye-Neill Co., 2744

• Decision Date: 03 January 1933
• Docket Number: No. 2744,2745.,2744
• Citation: 62 F.2d 625
• Court: U.S. Court of Appeals — First Circuit
• Parties: MANUFACTURERS' FINANCE CORPORATION v. VYE-NEILL CO. et al. VYE-NEILL CO. et al. v. MANUFACTURERS' FINANCE CORPORATION.

62 F.2d 625 (1933)

MANUFACTURERS' FINANCE CORPORATION v. VYE-NEILL CO. et al.

VYE-NEILL CO. et al. v. MANUFACTURERS' FINANCE CORPORATION.

Nos. 2744, 2745.

Circuit Court of Appeals, First Circuit.

January 3, 1933.

Harrison J. Barrett, of Boston, Mass. (John A. Lyons and Barrett & Lyons, all of Boston, Mass., on the brief), for Manufacturers' Finance Corporation.

Robert A. B. Cook, Marvin C. Taylor and Phipps, Durgin & Cook, all of Boston, Mass., for Vye-Neill Co. and others.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

These are cross-appeals in an action brought by the Manufacturers' Finance Corporation, a New York corporation doing business in New York, against the Vye-Neill Company, a Massachusetts corporation, doing business in Massachusetts. The plaintiff's declaration contains two counts. The first count is based on a draft, or trade acceptance, drawn by the Freed-Eiseman Radio Corporation, a New York corporation, hereinafter referred to as the Freed Corporation, and accepted by the Vye-Neill Company, and transferred by the Freed Corporation by indorsement to the Earl Radio Corporation, a New York corporation, and hereinafter referred to as the Earl Corporation, and by the Earl Corporation by delivery for value, and before maturity, to the plaintiff, which is alleged to be a holder in due course. In the second count the plaintiff seeks to recover as assignee of an account for goods sold and delivered by the Freed Corporation on November 18, 1929, to the defendant to the amount of $2,239; said account having been assigned by the Freed Corporation to the Earl Corporation, and by the Earl Corporation to the plaintiff.

The defendant filed an answer in which it denied that the plaintiff was a holder in due course of the trade acceptance, and also filed a declaration in set-off, under which it claimed a right of set-off, consisting of more than sixty items, both against the trade acceptance and also against the account on which the second count was based, and alleging that the plaintiff accepted the trade acceptance and the assignment of the account with full knowledge of and subject to the defendant's right of "recoupment, counter claims and set-off" against the Freed Corporation under a certain contract between them, of which the plaintiff had knowledge.

The plaintiff's writ was dated April 17, 1930, and in pursuance thereof an attachment of the defendant's property was made on April 29, 1930. On June 4, 1930, the property was released from the attachment by the defendant by filing a bond in the principal sum of $20,000, executed by the defendant as principal and by the Consolidated Indemnity & Insurance Company of New York as surety.

Within four months of the date of the attachment, or on August 7, 1930, a petition in bankruptcy was filed against the defendant, on which it was duly adjudicated a bankrupt. Subsequently a suggestion of bankruptcy of the defendant was filed in the case. The defendant in this action then filed a motion for leave to plead its discharge, if and when granted, and requested that the case be continued pending its discharge.

The plaintiff in October, 1930, and before any discharge in bankruptcy had been granted to the defendant, filed a motion that the case stand for trial and judgment, with a perpetual stay of execution in case of the discharge of the defendant in bankruptcy, to enable the plaintiff to proceed against the surety on the bond to release the attachment.

The defendant's motion was denied and the plaintiff's granted (D. C.) 46 F.(2d) 146. Exceptions were taken by the defendant and allowed, and whether the method of procedure adopted by the District Court can be sustained is one of the questions raised under the defendant's assignment of errors.

Before going to trial, the defendant's trustee in bankruptcy was joined, but, as none of the property of the bankrupt's estate is involved in this action, it does not appear that the trustee established any interest in the outcome of the action, and the effect of his joinder need not be considered.

The case was then referred to an auditor, who was directed to find the facts. By agreement of the parties, his findings of fact are to be considered as final. As not all the evidence is reported, and a motion for recommitment was denied, the auditor's findings of fact must stand, except in so far as they may involve a question of law, and his conclusion is contrary to law.

Protracted hearings were held by the auditor, who filed a detailed report of his findings. In substance, the auditor found that the plaintiff was a holder in due course of the trade acceptance and entitled to judgment on the first count for the face of the draft and interest amounting to $16,654.36; that the plaintiff was entitled to recover the amount of the invoice under the second count of $2,239 with interest or a total of both counts of $19,154.95; that the defendant under its declaration in set-off, if entitled to recover anything in set-off, was entitled to recover the amount of $15,792.42, with interest from the date of the writ of $1,458.17, or a total of $17,250.59; whereupon the auditor reported that there was a balance due the Manufacturers' Finance Corporation of $1,904.36.

On the coming in of the auditor's report, the plaintiff moved that it be recommitted, and the defendant moved that it be confirmed, and that judgment be entered for the plaintiff for the sum of $1,904.36.

The plaintiff's motion to recommit the auditor's report was denied. The District Court held, upon the facts found by the auditor, that the plaintiff was a holder in due course of the trade acceptance and was entitled to judgment on the first count for the amount of the trade acceptance with interest from December 15, 1929, but, without determining whether the auditor's findings as to each of the separate items of set-off were correct, held that the plaintiff could not recover on the second count. The inference is that the court held under section 11 of chapter 232 of Mass. G. L. that as against the plaintiff counterclaims against the Freed Corporation were allowable only to the amount of the plaintiff's claim, and found that the total items properly allowed by the auditor in set-off at least equalled the amount of the account sued on in the second count, with interest from the date of demand of payment.

Both plaintiff and defendant filed many assignments of errors. The assignments relied on by both parties, however, may be considered under four heads:

(1) Did the bankruptcy of the defendant within four months of the date of the attachment on the plaintiff's writ and its discharge release the surety as well as the defendant from liability under the bond, and did the District Court err in permitting the plaintiff to proceed to judgment against the principal in order to fix the liability against the surety?

(2) Is the plaintiff a holder in due course of the trade acceptance?

(3) If the plaintiff is not a holder in due course, is the defendant entitled to a right of set-off against the trade acceptance in the hands of the plaintiff; if so, to what amount?

(4) Is the defendant entitled to a set-off against the plaintiff under the second count; and, if the defendant has a right of set-off against the plaintiff for more than the amount due under count 2, is the defendant entitled to a judgment for the difference and to have such judgment set off against the plaintiff's judgment on the first count, as reported by the auditor?

The plaintiff's assignment of error on the ground that the District Court refused to recommit the report requires no extended consideration. Counsel for plaintiff admits that it would not be feasible — the auditor having since died — to refer the case to another auditor. Besides, the report of the former auditor was very full and complete, and contains all the facts essential to a determination of the case.

We think the ruling by Judge Brewster was right, viz. that a bond given to discharge an attachment, the condition of which is to pay the amount which the plaintiff shall recover on his writ or any special judgment which may be entered in said action, is in the nature of an independent contract, the effect of which is to discharge the lien on the goods resulting from the attachment. In this respect it differs from a "forthcoming bond," the condition of which is to restore the property in case of judgment. In the former case both the Massachusetts court and the federal courts hold that a discharge in bankruptcy does not discharge a surety, while in the latter case it does. While there is some difference of opinion, the rule in Massachusetts seems to be sustained by the greater weight of authority. Guaranty Security Corporation v. Oppenheimer et al., 243 Mass. 324, 137 N. E. 644; H. F. Livermore Co. v. Fidelity & Casualty Company of New York, 259 Mass. 419, 156 N. E. 674; Woogmaster v. National Surety Company, 260 Mass. 184, 157 N. E. 44; In re Federal Biscuit Co. (C. C. A.) 214 F. 221, 223; Brown v. Four-In-One-Coal Co. (C. C. A.) 286 F. 512; In re Rosenstein (C. C. A.) 276 F. 704; In re Maaget (C. C. A.) 179 F. 1019; Fidelity & Dep. Co. of Maryland v. Shepherd, 56 App. D. C. 117, 11 F.(2d) 563; Pullman Met. Spec. Co., Inc., v. Lang, 101 Conn. 26, 124 A. 824; Dunham Bros. Co. v. Colp, 125 Me. 211, 132 A. 388; Goodwin & Sigel v. Boston Clothing Co., 47 R. I. 25, 129 A. 611; Andrews v. Jones, 46 R. I. 141, 125 A. 356, 36 A. L. R. 447, note pages 449-451.

Where no property of the bankrupt is pledged to indemnify the surety against loss, the giving of such a bond is in the interest of the creditors of the bankrupt. If a surety assumes the obligation to pay the judgment without any security, we think the cases holding the surety liable, in case judgment is obtained against the bankrupt, are based on sound reasoning.

The procedure followed by Judge Brewster of permitting the case to go forward to judgment, prior to a...