Okin v. Isaac Goldman Co.

• Decision Date: 08 August 1935
• Docket Number: No. 490.,490.
• Citation: 79 F.2d 317
• Parties: OKIN v. ISAAC GOLDMAN CO.
• Court: U.S. Court of Appeals — Second Circuit

79 F.2d 317 (1935)

OKIN v. ISAAC GOLDMAN CO.

No. 490.

Circuit Court of Appeals, Second Circuit.

August 8, 1935.

Charles Seligson, of New York City (Samuel Wassermann and Bernard Bayer, both of New York City, of counsel), for appellant.

Nathan B. Fogelson, of New York City (Irving N. Selkin, of New York City, of counsel), for appellee.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The first cause of action, which is the only one involved on this appeal, was brought by the plaintiff as trustee in bankruptcy of Quality Publications, Inc., to recover sums of money aggregating $7,023.60 from the defendant Isaac Goldman Company. The payments were alleged to be voidable preferential transfers made within four months of the filing of the petition on January 7, 1932, and the suit was in terms founded upon section 60b of the Bankruptcy Act, 11 USCA § 96 (b). The payments made were as follows: $1,889.98 on September 23, 1931; $4,500 on September 29, 1931; $1,500 on October 28, 1931; $1,760.32 on November 11, 1931; and $373.30 on November 30, 1931.

Before Quality Publications, Inc., became bankrupt, it published a magazine called "The Thinker." The defendant printed the periodical under a written contract with the publisher, and Cohen, the president of the latter, guaranteed the defendant's account. Between the autumn of 1930 and April, 1931, Quality had become indebted to the defendant to the amount of $9,436.64, no part of which had been paid, and the latter naturally was dissatisfied with conditions. To give its creditor security for present and future indebtedness, Quality executed an assignment on April 7, 1931, of all moneys due and to become due to the defendant from the American News Company, which was the distributor of The Thinker, under a written contract with Quality. Between April 8, and July 8, 1931, the defendant printed and supplied materials for the May, June, and July issues of the magazines, resulting in a further indebtedness of $8,289.02 therefor. On July 8, 1931, Quality made a further assignment to the defendant of all moneys due and to become due from Public News Company, which had become the distributor of its magazine in succession to the American News Company. Each of the two assignments gave the defendant power for the latter's own interest to collect all of the moneys assigned thereby, either in its own name or in that of Quality Publications, Inc., and the second assignment mentioned recited that the Public News Company should withhold from Quality sufficient moneys to cover the amount of the defendant's invoices rendered to Quality plus the sum of $1,000 per month to be applied on the past indebtedness of the latter to defendant. The contract between Quality and the Public News Company provided that the first issue to be distributed by it was for September, 1931. Between July 9, 1931, and January 7, 1932, when the petition in bankruptcy was filed, the defendant received the payments aggregating $7,023.60, which the trustee in bankruptcy seeks to recover, as follows: From American News Company, $1,500 on September 29, 1931, $1,500 on October 28, 1931, and $373.30 on November 30, 1931; from Public News Company, $1,889.98 on September 23, 1931, and $1,760.32 on November 11, 1931.

The amounts defendant received from the American News Company were to cover credits it had advanced to the plaintiff for printing the magazine. The magazines were distributed to the American News Company prior to September 7, 1931, or more than four months before the filing of the petition in bankruptcy, and charged to American News Company on its books as and when delivered at 15 cents per copy with a credit of 15 cents for each copy that was not sold. Thus the defendant held an assignment of plaintiff's accounts with the American News Company, covering the issues of May, June, and July, which arose prior to September 7, 1931, although the payments in question were not received until after. The amounts defendant received from the Public News Company represented the current credits the defendant had advanced in connection with the September and October issues of The Thinker.

The question as to both the payments by the American News Company and by the Public News Company is whether the assignments to the defendant of the accounts against them were valid as against a trustee in bankruptcy, who has the rights of an attaching creditor. This depends on the state law, in this case the law of New York. Finance & Guaranty Co. v. Oppenhimer, 276 U. S. 10, 12, 48 S. Ct. 209, 72 L. Ed. 443; Benedict v. Ratner, 268 U. S. 353, 359, 45 S. Ct. 566, 69 L. Ed. 691; Hiscock v. Varick Bank of N. Y., 206 U. S. 28, 27 S. Ct. 681, 51 L. Ed. 945; Thompson v. Fairbanks, 196 U. S. 516, 522, 25 S. Ct. 306, 49 L. Ed. 577; Dooley v. Pease, 180 U. S. 126, 21 S. Ct. 329, 45 L. Ed. 457.

Under the New York law an agreement that payment shall be made out of a fund when it comes into existence creates an equitable lien valid against a trustee in bankruptcy unless the fund arises within four months prior to the filing of the petition. Archibald v. Panagoulopoulos, 233 N. Y. 478, 489, 135 N. E. 857. Such was assumed in Benedict v. Ratner, 268 U. S. 353, 359, 361, 45 S. Ct. 566, 69 L. Ed. 691, to be the New York law, although the decision turned on the question whether a genuine and unrestricted assignment had been made. It is the general rule in New York that such a lien takes effect when the future chose in action becomes the property of the promisor. Central Trust Co. v. West India Imp. Co., 169 N. Y. 314, 323, 62 N. E. 387. Compare Barnes v. Alexander, 232 U. S. 117, 34 S. Ct. 276, 58 L. Ed. 530.

This rule, however, does not apply as against a trustee in bankruptcy or execution creditor to either personal chattels or to choses in action when they are subject to sale or use by the assignor in his business. Benedict v. Ratner, 268 U. S. 353, 45 S. Ct. 566, 69 L. Ed. 691; Zartman v. First Nat. Bank, 189 N. Y. 267, 82 N. E. 127, 12 L. R. A. (N. S.) 1083; New York Security & Trust Co. v. Saratoga Gas & Electric L. Co., 159 N. Y. 137, 53 N. E. 758, 45 L. R. A. 132; Rochester Distilling Co. v. Rasey, 142 N. Y. 570, 37 N. E. 632, 40 Am. St. Rep. 635; Prudential Ins. Co. v. Liberdar Holding Corp. (C. C. A.) 74 F.(2d) 50. In such cases the courts either hold the arrangement fraudulent or at any rate ineffective until something is done by the assignee to perfect his lien.

In our decision of In re Modell, 71 F.(2d) 148, there is some language of Judge Swan relating to assignments of choses in action which had not come into being when the assignments were made which may be thought to modify what we have stated to be the New York rule, but in that decision the assignment which purported to cover the right, title, and interest of the assignor in any "judgment or proceeds thereof" which the latter might recover in a pending action for malicious prosecution did not operate upon the judgment until within the four months' period, for only within that period was the judgment entered. Prior to that time it could not affect a nonassignable cause of action to recover damages for a personal tort. Williams v. Ingersoll, 89 N. Y. 508, 519. The equitable lien involved in the Modell decision was plainly preferential because arising within the four months' period.

In Irving Trust Co. v. Commercial Factors Corp., 68 F.(2d) 864, we held that a mortgage on after-acquired chattels, while creating an equitable lien on property when it comes into existence as against simple creditors or purchasers with notice, under the New York law...