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SWETNAM v. EDMUND WRIGHT GINSBERG CORP.

March 18, 1941

SWETNAM
v.
EDMUND WRIGHT GINSBERG CORPORATION



The opinion of the court was delivered by: BYERS

BYERS, District Judge.

The plaintiff trustee in bankruptcy, who has insufficient assets in hand to pay creditors in full, seeks to avoid the assignment and transfer of accounts receivable, of the asserted value of $94,278.30, by the Deford Company, bankrupt, during the four months prior to July 20, 1938, when it filed a voluntary bankruptcy petition in the United States District Court for the Western District of Virginia.

The Deford Company was engaged in converting green hides into leather at its plant in Luray, Virginia, and its business office was located in Baltimore, Maryland.

 The bankrupt had been insolvent from early in 1937, to the knowledge of the defendant, but the latter denies reasonable cause to believe that it was receiving a preference by reason of the matters alleged.

 The defense rests upon an agreement between the bankrupt and the defendant dated November 25, 1936, which constituted the defendant the factor of the bankrupt, whereby it became entitled to retain and collect the said accounts receivable.

 The agreement is annexed to the answer, and is too voluminous to be set forth in full. Its relevant provisions may be epitomized as follows:

 The defendant was constituted the exclusive factor for the bankrupt and thus was to acquire merchandise and accounts receivable to be consigned to or pledged with it, and against which it was to make advances to the bankrupt; the instrument recited a present pledge, assignment, transfer and delivery to the factor of "all the right, title and interest of Deford in and to hides and leather as it may from time to time purchase or manufacture", which were to be and remain collateral security for advances theretofore or thereafter to be made from time to time, to be paid by Deford to the factor at its office in New York.

 Tanning operations for others were permitted on the part of Deford but apparently there were none, and the identity of the pledged products was agreed to be maintained.

 The pledged hides and leather at cost or net fair market were agreed to be maintained in the ratio of $133.33 to each $100 advanced or loaned, and the former figure was to be subject to determination by the factor.

 Absolute and exclusive possession and dominion over the pledged property was agreed to result from the lease of buildings Nos. 14 (hide house), 17, 22 and 55 (leather warehouses), and 25 (warehouse office) by the bankrupt to the factor; the contract period was from October 14, 1936, to December 31, 1938, subject to earlier termination by the payment of all advances; the lease was to be automatically renewed or extended as might be required by operations under the contract.

 Signs were to be erected and maintained on the said buildings, and the latter were to be locked as the factor might deem fit.

 Deford agreed to do any and all other things that factor might require in order effectually to show the public or any persons interested that said hides and leather had been pledged to, and were in the exclusive custody, control and dominion of the factor.

 The latter might have one or more representatives at the plant to supervise and have charge of the said leased premises and to act as custodian of the pledged property; if an employee of the bankrupt should be selected to act in that capacity, he was to be taken off the pay roll of the bankrupt and to be paid by the factor.

 A right of way over the bankrupt's premises, to permit of free and unrestricted access to and egress from the said premises, was included in the contract.

 Deford waived and released the factor from any and all duties and liabilities as lessee under the common law or the statute law of Virginia except the obligation to pay the rental; Deford released the factor from any loss, damage or injury by shrinkage, shortage or discrepancies or theft of the pledged property on the part of the factor or its representatives.

 Notification to the Federal Reserve Bank of Richmond of the pledge was to be given, and the form of lease was to be satisfactory to that institution.

 Written leases were to be prepared and delivered and filed and recorded. All hides were to be taken from the hide house to the tannery by Deford for the purpose of tanning, and each hide was to be stamped so as to identify it as covered by the pledge; when manufacturing and processing had been completed, the leather was to be delivered into the possession of the factor at its warehouse buildings Nos. 17, 22 and 55.

 Insurance was to be carried by Deford, and the policies were to be delivered to the factor, in default of which the factor could procure insurance and charge the premiums to Deford.

 Inventories were to be furnished to the factor from time to time, as were reports concerning the hides in process of being converted into leather.

 Deford was to market and sell the pledged leather to customers whose credit should be passed on by the factor, and at prices not less than the amounts of the loans advanced. The factor was to have complete control over the credit risks and shipments and deliveries.

 All accounts arising from shipments were agreed to become immediately the property of the factor, as to which the agreement recited a present sale, assignment and transfer, and an undertaking to execute further instruments as might be required, upon the understanding that the accounts should become the property of the factor immediately upon shipment; invoices were to bear this legend: "This account is assigned to Edmund Wright Ginsberg Corporation, 159 Madison Avenue, New York, N.Y., and is payable to them exclusively." A copy of each invoice with transportation receipt was to be delivered by Deford to the factor, and the latter reserved the right to have shipment made in its name.

 Monthly statements of the advances to Deford were to be rendered, and the factor's commission was 2% for its services.

 Selling expenses were to be paid by Deford, and all payments made to the latter on accounts assigned to the factor were agreed to be held in trust for the latter, and ...


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