Reconstruction Finance Corp. v. Cody Finance Co.
| Decision Date | 08 July 1954 |
| Docket Number | No. 4781.,4781. |
| Citation | 214 F.2d 695 |
| Parties | RECONSTRUCTION FINANCE CORP. v. CODY FINANCE CO. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Norman B. Gray, Cheyenne, Wyo. (J. J. Hickey, C. R. Ellery, Cheyenne, Wyo., and Hotz & Hotz, Omaha, Neb., on the brief), for appellants.
Alfred M. Pence, Laramie, Wyo., for appellee.
Before PHILLIPS, Chief Judge, and HUXMAN and PICKETT, Circuit Judges.
This is a contest between the Reconstruction Finance Corporation, herein called the RFC, and the Cody Finance Company, a co-partnership, herein called the finance company, over who has the superior right to the possession of certain assets of the Motor Sales Corporation for the purpose of liquidating them, in order to apply the proceeds from such liquidation in satisfaction of the claim each has against the motor company. This is an appeal from the judgment of the trial court determining that the finance company by virtue of two assignment agreements was the owner of certain accounts and notes receivable in question to the exclusion of the RFC, which claimed a prior lien thereon.
The decision in the case turns upon whether the appellee, the finance company, had actual knowledge or facts to put it upon inquiry, when it took its assignments of the accounts and bills receivable as security for its loan, of a prior assignment of the same assets to the RFC to secure a loan to it and, if it had sufficient information to put it upon inquiry, whether it sufficiently discharged the duty then resting upon it so as to give it a first and prior claim to the assets, notwithstanding that its assignment was subsequent in point of time to that of the RFC.
There is little dispute in the facts. The Motor Sales Company, a Wyoming corporation, was engaged in the business of selling automobiles at Cody, Wyoming. It did a large business and required extensive financing. On March 24, 1950, it borrowed $94,000 from the RFC. To secure this loan it executed certain mortgages and a document entitled "Blanket Assignment of Accounts and Notes Receivable." This instrument was not placed of record. It assigned to the RFC notes and accounts receivable then held or thereafter acquired while any indebtedness remained due on the loan. It permitted the motor company to retain possession of the securities, deposit the proceeds thereof in its own bank account in the First National Bank of Cody, and use them in its business. It required the motor company to maintain notes and accounts receivable in an amount of at least $30,000, with right of substitution. It provided that if at any time the accounts receivable fell below $30,000 the motor company agreed to deposit cash in the bank in trust for the RFC, which together with the notes and bills receivable on hand, would equal $30,000. The instrument constituted the bank the agent of the motor company to check the accounts and report the status thereof to the RFC. It provided in the event of default in the amount of the required deposits that the entire amount of the indebtedness should become due and all such notes and accounts receivable should immediately become the property of the RFC for the purpose of applying the proceeds thereof upon the indebtedness then due and that upon notification by the RFC the bank should then hold the cash and notes and bills for the use and benefit of the RFC. Neither the bank, the denominated agent of the motor company, nor the motor company had copies of the agreement in their files.
Sometime thereafter, the motor company needed additional financing to continue in business. On October 25, 1950, it obtained a loan of $30,000 from the finance company. On that date it executed two instruments denominated "Assignment Agreement, Chattel Mortgage and Real Estate Mortgage." By the terms thereof the motor company assigned to the finance company all notes receivable, accounts receivable and all money then due or to become due to the motor company in connection with its automobile and garage business, with authority to have and to hold and collect the same, and providing that the funds so collected and received should be the property of the finance company and should not be credited or deposited to the account of the motor sales company. These instruments were filed and recorded in the office of the county clerk.
The notes and accounts receivable so pledged were left in the custody of the motor company until about November 9, 1950. At that time the manager of the finance company, becoming alarmed at the financial status of the motor company, removed all the securities to his own place of business, where they remained except...
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