Nance, In re

• Decision Date: 13 June 1977
• Docket Number: No. 76-1541,76-1541
• Citation: 556 F.2d 602
• Parties: In re James S. NANCE, Bankrupt. Appeal of COOLIDGE BANK AND TRUST COMPANY.
• Court: U.S. Court of Appeals — First Circuit

Page 602

556 F.2d 602

In re James S. NANCE, Bankrupt Appeal of COOLIDGE BANK AND TRUST COMPANY.

No. 76-1541.

United States Court of Appeals First Circuit.

Submitted April 7, 1977.

Decided June 13, 1977.

Santo J. Ruma, Boston, Mass., on brief for appellant.

Erwin E. Cooper, Boston, Mass., on brief for appellee.

Before COFFIN, Chief Judge, MARKEY, Chief Judge, ^* CAMPBELL, Circuit Judge.

LEVIN H. CAMPBELL, Circuit Judge.

Coolidge Bank and Trust Co. (the bank) petitioned the bankruptcy judge to have a debt of the bankrupt, James S. Nance, declared non-dischargeable. After an evidentiary hearing, the bankruptcy judge determined that the bankrupt had willfully and maliciously converted $24,000.09 which was the property of the bank, and that the bankrupt's liability to the bank for this amount was a non-dischargeable debt under section 17(a)(2) of the Bankruptcy Act, 11 U.S.C. § 35(a)(2). ¹ Nance appealed this ruling to the district court, which reversed on the ground that the Massachusetts "Assignment of Wages" statute, Mass.Gen.Laws Ann. ch. 154, had invalidated Nance's attempted assignment of deferred salary to the bank. The bank appeals.

I

Nance was a professional football player for the New England Patriots. He became a customer of the bank in 1968 or 1969 and soon acquired a checking account, a Master Charge account, an Executive Credit Agreement, and a commercial loan. By September 1970, the bank advised Nance that he was in arrears on many of his obligations and his loans should be brought up-to-date. Nance and his agent, Mr. Myers, met with the bank's officers on September 7, 1970 and gave assurances that the bank would be paid. At the meeting Nance executed a document entitled "Assignment of Contract". The subject of the purported assignment was "Standard Player contract Boston Patriots Football Club, Inc., and player James S. Nance, Jr., dated 9/7/70" covering the 1970, 1971, and 1972 playing seasons. The assignment recited Nance's "current" and "deferred" compensation for the three seasons. ² At the bottom, just above Nance's signature, came the statement: "As to this contract and the above mentioned compensation, I do assign that portion of said contract over to the Coolidge Bank and Trust Company as collateral for any monies loaned to me" by the bank. Nance testified that the bank officers told him that the instrument was merely "something to pacify the board of directors" and was not true collateral. He said that he intended at the time to pay off his obligations to the bank from investment income and from his salary from the Patriots. The president of the bank testified to the contrary that both Nance and the bank understood that this assignment of Nance's current and deferred compensation was backup collateral.

Nance was traded to another club sometime after the 1971 season, and while he was there, Myers enjoyed "full power of attorney on all monies due (Nance) by the New England Patriots". An exhibit in the record reveals that in May, 1972, the Patriots' president wrote to Myers indicating his willingness to release Nance from the third year of his contract but showing strong opposition to a request from Myers that the Patriots accelerate payment of Nance's deferred income. In September, 1972, bank auditors were questioning the adequacy of the bank's security for outstanding loans to Nance, and Nance executed a "Declaration of Revocable Trust" naming himself as sole beneficiary and designating the bank and Myers as trustees with "full and absolute power over all monies owed to (Nance) by the New England Patriots" and a right "to a sixty-day notification by the New England Patriots in the event that any monies owed the Settlor by (the Patriots) are to be paid directly to him or on his behalf." A copy of the 1970 Player Contract was attached to the trust instrument. The trust could not be altered, amended, revoked or terminated by Nance for one year after its execution without the agreement of the trustees.

The following month, the bank called Nance in and asked him to consolidate in one instrument all loans previously made to him by the bank. This he did by executing a demand note, dated October 6, 1972, in the amount of $55,809.32. ³ No new consideration was given. The note recited that Nance had deposited as collateral security the following property: "Assignment of Revocable Trust on monies owed to James Nance by the New England Patriots". The bank considered this assignment "backup collateral" on Nance's personal obligation on the note. Nance testified that he never told the bank that it would be paid out of his deferred compensation, but toward the end of his cross-examination, the following exchange took place:

"Q (D)o you deny that you intended to assign to the Coolidge Bank & Trust Company the deferred compensation that you were to receive from the Boston Patriots?

"A At some point, yes; if it came down to no other way of paying the Coolidge Bank, yes . . . ."

By January, 1973, Nance was not current on interest obligations on the demand note. Contemplating legal action, the bank sought advice regarding the "Assignment of Contract" and "Declaration of Revocable Trust" executed by Nance. Counsel advised that both were questionable as legal documents to be enforced by the bank. The bank then called all parties together for a meeting on February 16, 1973. Nance testified that he felt the purpose of the meeting was to produce something "to appease the Board of Directors." The bank's president testified that the meeting was called to determine when the bank was "going to get paid based on the assignment of the collateral" and that Nance and Myers assured the bank "that they would pay out of this particular assignment this collateral and that Mr. Myers was about to enter into negotiations with the Patriots to produce this money". He testified further that the parties agreed to meet with the bank's counsel the following day "where, in the spirit of cooperation, an instrument could be perfected that would make (counsel) happy as far as collecting money from the Patriots". Another bank officer present at the meeting testified that it was his understanding that a meeting would take place the following day "to draft a new form and . . . to contact the Patriots regarding it." A meeting was held the following day between counsel, Nance and Myers. Myers testified that the bank's counsel had suggested that Nance execute a new agreement to collateralize the monies owed to Nance by the Patriots but that Nance declined to sign any new document because he was engaged in delicate negotiations with the Patriots for accelerated payment of the deferred compensation. No new document was executed at this meeting.

On April 2, 1973 Nance wrote the bank indicating that he had requested of the Patriots "a fifteen thousand ($15,000.00) dollar advance against deferred income" and that the Patriots "acknowledg(e) that I have already earned the monies described in a previous assignment to the Coolidge Bank and Trust Co.", and stating his "intention to deliver up to the bank, fifteen thousand ($15,000.00) dollars sometime within the next two weeks; twenty-five thousand ($25,000.00) dollars with the first week of January, 1974 and the balance of all monies due within the first week of January, 1975." Nance did not pay the bank according to the schedule indicated, but the bank took no action. One bank officer testified that the bank did not proceed to collect on the collateral because of assurances by Myers and Nance on several occasions that Nance would make good on his debt.

In early December, 1973, Nance and the Patriots settled Nance's claim to deferred income for $64,056.59, of which $35,056.50 was credited to discharge a promissory note previously executed by Nance in favor of the Patriots. The balance of $29,000.09 was paid to Nance in two installments: $14,000.00 in December, 1973 and $15,000.09 in January, 1974. Nance turned over to the bank $5,000.00 out of the first installment, but failed to pay anything more on the note. In March, 1974, the bank brought an action in state court on its promissory note for the unpaid balance of $53,025.92. In July, 1974, Nance filed his petition for bankruptcy, which stayed the action in state court.

The bank then filed its petition with the bankruptcy judge seeking to establish the debt of the bankrupt to the bank as $24,000.09 and to have it declared a non-dischargeable debt. The bank had the burden of proving that the money Nance received from the Patriots was "property" of the bank and that it was willfully and maliciously converted. See Bennett v. W. T. Grant Co., 481 F.2d 664 (4th Cir. 1973); Haerynck v. Thompson, 228 F.2d 72 (10th Cir. 1955); note 1, supra. The bankruptcy judge found that Nance "knew he was assigning his deferred income as security and intended to do so" and ruled that the bank held an effective assignment. In his view, Nance's acts and words indicating an intention to make the bank the owner of his claim to deferred income were sufficient to create an equitable assignment as between the parties even if the documents themselves did not create a legally enforceable assignment. See Kagan v. Wattendorf & Co., 294 Mass. 588, 3 N.E.2d 275 (1936); Cosmopolitan Trust Co. v. Leonard Watch Co., 249 Mass. 14, 143 N.E. 827 (1924). As evidence of Nance's intention to create an assignment and his recognition of the bank's interest in the deferred income, the bankruptcy judge pointed to the purported assignment of September 7, 1970, the trust instrument of September, 1972, the note of October 6, 1972 assigning as security the "Revocable Trust on monies owed to James Nance by the New England Patriots", Nance's letter to the bank of April 2, 1973, and "the repeated requests to the bank not to notify the Patriots because of its effect on the settlement negotiations". The bankruptcy judge ruled that the Massachusetts statutory scheme governing ...