Shiro v. Drew

• Decision Date: 30 June 1959
• Docket Number: Civ. No. 5-111.
• Citation: 174 F. Supp. 495
• Parties: Burton G. SHIRO, Trustee of the Estate of The American Fiberlast Company, Bankrupt v. Gordon W. DREW.
• Court: U.S. District Court — District of Maine

174 F. Supp. 495

Burton G. SHIRO, Trustee of the Estate of The American Fiberlast Company, Bankrupt v. Gordon W. DREW.

Civ. No. 5-111.

United States District Court D. Maine, S. D.

June 30, 1959.

John J. Flaherty, Portland, Me., for plaintiff.

Vincent L. McKusick, Portland, Me., for defendant.

GIGNOUX, District Judge.

This is an action brought pursuant to the provisions of Section 60 of the Bankruptcy Act, 11 U.S.C.A. § 96, by plaintiff as trustee in bankruptcy of the American Fiberlast Company to recover as a voidable preference the sum of $2,056.87 paid by the bankrupt to defendant on February 11, 1957.

The facts necessary to a decision in the matter have been stipulated by the parties and, as stipulated, are so found by the Court as follows:

In August or September, 1956 the American Fiberlast Company obtained a contract from Hazeltine Electronics Corporation for the construction of a twenty-one foot Radome¹ for the price of $4,900. The purchase order for the Radome was delivered by Fiberlast to defendant and retained by him until February 11, 1957 for use in attempting to borrow money for the Corporation to perform the contract.

On November 1, 1956 Fiberlast, by Joseph L. Brewster, its president, executed under its corporate seal and delivered to J. Riker Proctor and defendant the following instrument, which was in letter form on the corporate stationery:

"Nov. 1, 1956

"To J. Riker Proctor and Gordon L. Drew

"Gentlemen:

"Whereas The American Fiberlast Co. has received a contract for a 21' Radome from Hazeltine Electronics Corp. totaling $4900.00 but is unable to finance the purchase of the necessary materials and labor to construct the dome—the American Fiberlast Co. agrees that any money advanced by Mr. Proctor and Mr. Drew for the specific expense of manufacturing the Radome will be paid immediately to Mr. Proctor and Mr. Drew upon receipt of Hazeltine's remittance irrespective of any other demands from other creditors.

"The American Fiberlast Co.

(Corp "/s/ J. L. Brewster Seal) "by Joseph L. Brewster President"

Subsequent to November 1, 1956 defendant loaned to Fiberlast the sum of $2,056.87 for the specific purpose of permitting it to perform its contract with Hazeltine. This amount was loaned by defendant in reliance upon the instrument of November 1, and the money so loaned was in fact used by Fiberlast for the performance of the Hazeltine contract. With the help of these funds Fiberlast completed the contract and received the $4,900 contract price from Hazeltine on February 11, 1957. On the same date Fiberlast repaid to defendant the $2,056.87 here in issue.

Fiberlast was adjudged a bankrupt on petition of J. Riker Proctor and two others filed on February 20, 1957. The stipulation recites that at all times material hereto Fiberlast was insolvent; defendant had reasonable cause to believe Fiberlast was insolvent; and there were in existence creditors of Fiberlast, other than defendant, who have not been repaid their debts.

Section 60 of the Bankruptcy Act provides in part as follows:

Sec. 60 "Preferred creditors

"a. (1) A preference is a transfer * * * of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.

* * * * * *

"b. Any such preference may be avoided by the trustee if the creditor receiving it * * * has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent. Where the preference is voidable, the trustee may recover the property * * *. For the purpose of any recovery or avoidance under this section, where plenary proceedings are necessary, any State court which would have had jurisdiction if bankruptcy had not intervened and any court of bankruptcy shall have concurrent jurisdiction."

On the stipulated facts, the disputed payment was concededly a transfer of property by a debtor, while insolvent, made within four months before the filing of a petition in bankruptcy, for the benefit of a creditor, who had reasonable cause to believe that the debtor was insolvent, the effect of which was to prefer that creditor. Thus the only question for determination by the Court is whether or not the sum of $2,056.87 was transferred to defendant "for or on account of an antecedent debt." On this issue defendant contends that the letter of November 1, 1956 was either a partial assignment or a declaration of trust by Fiberlast of a portion of the proceeds of the Hazeltine contract, and that the repayment of his loan was, in consequence, not "for or on account of an antecedent debt." Plaintiff's position is that the letter was a mere promise to pay out of a particular fund, and that the subsequent payment was accordingly "for or on account of an antecedent debt," preferential and voidable.

With respect to defendant's first contention, it is clear that if the instrument of November 1, 1956 was a partial assignment² given as security for loans to be made to Fiberlast by defendant, no preference occurred when the corporation repaid the $2,056.87 subsequently loaned it by defendant. Doggett v. Chelsea Trust Co., 1 Cir., 1934, 73 F.2d 614. It is equally clear that if the instrument was no more than a promise to pay from a particular source, the repayment to defendant was in satisfaction of a pre-existing debt and preferential. See Lone Star Cement Corp. v. Swartwout, 4 Cir., 1938, 93 F.2d 767, 769. Decision of this aspect of this case consequently hinges upon the proper construction of the instrument of November 1, 1956—a construction controlled by the law of Maine, where the instrument was executed. Manchester Nat. Bank v. Roche, 1 Cir., 1951, 186 F.2d 827, 829; Lone Star Cement Corp. v. Swartwout, supra, 93 F.2d 770; In re Dodge-Freedman Poultry Co., D.C.N.H.1956, 148 F. Supp. 647, 650, affirmed per curiam sub nom. Dodge-Freedman Poultry Co. v. Delaware Mills, Inc., 1 Cir., 1957, 244 F. 2d 314.

No Maine case succinctly sets forth the requisites of a valid assignment. However, it is hornbook law that an assignment is an act or manifestation by the owner of a right which indicates his intention to transfer, without further action, that right to another. See Restatement, Contracts § 149(1) (1932). And the courts have uniformly recognized that an agreement to pay out of a particular fund, without more, is not an assignment, but that to constitute an assignment there must be a manifestation of an intention by the assignor to relinquish control of the right assigned and to appropriate that right to the assignee. Christmas v. Russell, 1871, 14 Wall. 69, 84, 81 U.S. 69, 84, 20 L.Ed. 762; Lone Star Cement Corp. v. Swartwout, supra; B. Kuppenheimer & Co. v. Mornin, 8 Cir., 1935, 78 F.2d 261, 101 A.L.R. 75, certiorari denied 1935, 296 U. S. 615, 56 S.Ct. 135, 80 L.Ed. 436; Farmers' Bank v. Hayes, 6 Cir., 1932, 58 F. 2d 34, 37, certiorari denied 1932, 287 U. S. 602, 53 S.Ct. 8, 77 L.Ed. 524; East Side Packing Co. v. Fahy Market, 2 Cir., 1928, 24 F.2d 644, 645; In re Dodge-Freedman Poultry Co., supra, 148 F. Supp. 650; 2 Williston on Contracts § 428 (Rev. ed. 1936). While no particular words are required for an assignment (See e. g. Wade v. Bessey, 1884, 76 Me. 413), the intent to transfer a present interest must be manifest, and the assignor must not retain any control over the right assigned or any power of revocation. In fact, it frequently has been said that the test is whether or not the debtor would be authorized to pay the amount directly to the person claiming to be the assignee, without further action or consent by the assignor. See Christmas v. Russell, supra, 14 Wall. 84, 81 U. S. 84; Farmers' Bank v. Hayes, supra, 58 F.2d 37; East Side Packing Co. v. Fahy Market, supra, 24 F.2d 645; 2 Williston on Contracts § 428 (Rev. ed. 1936). As stated in Lone Star Cement Corp. v. Swartwout, supra (93 F.2d at

pages 769-770):

"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 written word or by some conduct signifying a relinquishment of control by the assignor and an appropriation to the assignee. * * *" (Emphasis supplied.)

With these fundamental principles in mind, the Court turns to the interpretation and effect of the...