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In re Barnett

January 7, 1942


Appeal from the District Court of the United States for the Eastern District of New York.

Author: Frank

Before L. HAND, CLARK, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

The District Court, reversing an order of the referee, declared that an instrument by which Cecelia Barnett, the bankrupt, assigned to her mother, Clara Essenfeld, her testate and intestate interest in her father's estate, was invalid as to her trustee in bankruptcy. In 1935, her father had made a will, leaving to her 15% of his residuary estate. The following year she assigned to her mother, in consideration of $5,000 paid by her father, all her rights, in intestacy or under any will previously or thereafter made, to her father's estate. Some four years later, on August 29, 1940, she filed a voluntary petition in bankruptcy and was adjudicated. On the following day her father died, and his 1935 will was admitted to probate soon thereafter.

The trustee in bankruptcy petitioned for an order directing the bankrupt to execute an instrument assigning her interest in her father's estate to the trustee, free and clear of the claims of Clara Essenfeld, and restraining her father's executors from recognizing the assignment to Mrs. Essenfeld and from making payments pursuant to it. The bankrupt and Mrs. Essenfeld contested the application on the merits; the executors appeared, but did not oppose. The referee held the assignment was valid as against the trustee, and denied his application. The judge reversed and granted the requested order. The bankrupt has appealed.

No appeal was prayed by the other parties. But the attorney for the bankrupt signed his brief, filed in this court, as attorney both for the bankrupt and her mother Mrs. Essenfeld. He apparently believed that the rights of the mother were before this court. No objection to his thus signing his brief was made by the trustee. Going below the surface appearances and viewing the situation realistically, as the Supreme Court admonishes us to do,*fn1 it is obvious that the mother assumed that the order, so far as it affected her, would be dealt with by us on this appeal.

1. In the brief which he filed here, counsel for the bankrupt and her mother, seemingly believing that the District Court had correctly decided that the assignment was invalid as against the trustee, asserted that the order was erroneous on another ground not argued in the trial court, i.e., that the consideration paid to the bankrupt by her father operated as an ademption. The trustee strenuously argued that we should not consider that new issue. Although we are inclined to agree that, if the assignment were invalid, there was an effective ademption, we prefer not to decide the case on that basis. We do not feel that we are precluded from deciding on a ground not pressed by counsel.*fn2 Such a course, however, is undesirable where not necessary; it is usually better, if possible, to consider a case as it was persented to the lower court.*fn3 If the trustee opposed our consideration of the ground relied upon by the lower court merely because it was abandoned on appeal by his adversary, we would still feel free to consider it; where, as here, the trustee expressly urges that only the original the ory is open to us, we are of course doubly justified in preferring to rest upon that theory rather than upon the new one.

2. Disregarding the ademption issue, it is clear that, were it not for the assignment, the trustee would win; for § 70, sub. a(8) of the amended Bankruptcy Act, 11 U.S.C.A. 110, sub. a(8), removes whatever doubt there formerly was as to his right to claim the bankrupt's share of the testator's estate. The trustee's status to avoid the assignment, conferred by § 70, sub. c is, as of the date of bankruptcy, that of "a judgment creditor then holding an execution returned unsatisfied, whether or not such a creditor actually exists." Since this status is granted by § 70, sub. c as to "property," there is a possible question that an "expectancy" is not therein included, but we pass it as no more than a quibble, and turn to the more substantial issue of whether, in New York, a judgment creditor may avoid an assignment of an expectancy.

As early as 1867, in Stover v. Eycleshimer, 4 Abb.Dec. 309, 42 N.Y. 620, 3 Keyes 620, it was held that the assignment of an expectancy is enforceable in equity. With apparently only one exception, In re Zimmerman's Will, 104 Misc. 516, 172 N.Y.S. 80, later referred to as "mistaken" (In re Strange's Estate, 164 Misc. 929, 300 N.Y.S. 23), that doctrine has stood the test of time. Nugent v. Smith, 202 App.Div. 279, 195 N.Y.S. 338; In re Eisner's Will, 129 Misc. 106, 221 N.Y.S. 598; In re Cornell's Will, 170 Misc. 638, 12 N.Y.S. 2d 162. In Stover v. Eycleshimer, it was held that the assignee's rights were superior to those of a creditor who levided an attachment on the interest of the assignor and obtained a judgment after the testator's decease. The same result was reached in Re Cornell's Will, 170 Misc. 638, 12 N.Y.S.2d 162, where the creditor recovered judgment before the testator's death. This holding is in accord with the general view in other jurisdictions. See cases there cited, and Annotations, 17 A.L.R. 597, 612; 44 A.L.R. 1465; cf. Williston, Contracts, § 1681A. Stover v. Eycleshimer, supra, has become a leading case, and has been widely taken to hold broadly that the assignee's rights are superior even where the judgment is entered before the testator's death. In fact, Hale v. Hollon, 90 Tex. 427, 39 S.W. 287, 36 L.R.A. 75, 59 Am.St.Rep. 819, relied upon by the New York court in Re Cornell's Will, had, in turn, placed reliance for its position upon Stover v. Eycleshimer. Although one or two cases decided by a subordinate state court might not conclude us, we cannot assume that In re Cornell's Will is incorrect and that New York, the fountain head of liberal enforcement of such assignments, would go contrary to the overwhelming view in other jurisdictions. The trustee cannot rely on the assignee's failure to record her assignment under § 32, Personal Property Law, of § 274, Real Property Law, because, in New York, he is not a "subsequent purchaser or mortgagee." See In re Sherower's Estate, 171 Misc. 295, 12 N.Y.S.2d 530, where a receiver appointed on supplementary proceedings was able to avoid a similar assignment only by showing fraud; and cf. In re Eckel's Will, 256 App.Div. 1031, 10 N.Y.S.2d 837.

Our conclusion is not in conflict with our decision in Irving Trust Co. v. Commercial Factors Corp., 2 Cir., 68 F.2d 864, upon which the court below relied. That case held that an equitable lien created by a factoring agreement could not be upheld against a trustee in bankruptcy unless it was perfected by the taking of possession more than four months before bankruptcy. That decision, like ours here, rested upon New York law. The New York cases there cited showed that certain tyhpes of equitable liens, especially those created by mortgages and pledges of after-acquired property, could not withstand the onslaught of creditors who obtained judgment before the mortgagee or pledgee took possession. Titusville Iron Co. v. New York, 207 N.Y. 203, 100 N.E. 806; Zartman v. first National Bank, 189 N.Y. 267 ,82 N.E. 127, 12 L.R.A., N.S., 1083; Rochester Distilling Co. v. Rasey, 142 N.Y. 570, 37 N.E. 632, 40 Am.St.Rep. 635; In re Friedman, 2 Cir., 72 F.2d 412, and Okin v. Isaac Goldman Co., 2 Cir., 79 F.2d 317, similarly turning on New York law, did not involve the equitable rights of assignees of expectancies. It is not our duty, of course, to explain why the New York courts distinguish between the validity of mortgages and pledges of after-acquired property, and assignments of expectancies.

3. So that the pertinent facts should more clearly appear, we have followed the unusual course of first discussing the merits. We now turn to the trustee's contention that the appeal must be dismissed because the bankrupt, sole appellant, was not affected by the decree and hence is not a proper party appellant. It is true, as the bankrupt admits in her brief, that the adjudication as between the trustee in bankruptcy and the assignee, is not, as such, her concern. But the trustee petitioned for, and the District Court granted, an order requiring the bankrupt to execute an instrument assigning her rights to the trustee in bankruptcy. That this order is appealable there can be no doubt, for if the assignment was valid, then the District Court lacked power to compel the bankrupt to execute an assignment. This is true regardless of whether such an assignment would deprive the bankrupt of any substantial property rights. For a citizen cannot be wrongfully compelled by a court to do any involuntary act, and therefore, if the District Court's order was in error, it should be reversed. Moreover, it must be noted that the assignment, executed by the bankrupt to her father for the benefit of her mother, in 1934, contained an express covenant on bankrupt's part to execute all further necessary instruments to vest and confirm title in the property assigned, in effect, substantially a covenant for further assurance. Without deciding whether or not such a covenant would be completely terminated by the order entered below, we may point out that this covenant demonstrates still more the practical interest of the bankrupt in opposing the order, an interest, too, upon which the other parties might well be expected to depend.

Compare Tuffy v. Nichols, 2 Cir., 120 F.2d 906, 908, certiorari denied 62 S. Ct. 113, 86 L. Ed. - , Oct. 13, 1941.

4. As previously observed, the other parties adversely affected by the lower court's order did not pray an appeal. Had they done so, it is clear, from our opinion, that we would have held the order erroneous as to them. We are clear that we have the power to order a reversal as to them even though they did not appeal, and that we should do so under the circumstances here disclosed. The anomalous position of the parties otherwise, and the quite naturally embarrassing questions which would confront the state court if the order, stigmatized by us as erroneous, remains partially in effect, are patent. The state court must certainly pass upon the issue of ademption if that issue ever arises (as it surely must if we were to set the assignment aside). How far it is to go and how far the non-appealing parties can go, in view of the injunction entered against them below, would be left in some ambiguity, for it would seem that that question is not at all settled in the proceedings herein. Beyond this, however, if the trustee cannot claim the property as against the bankrupt, as we now hold, the state court might possibly consider that it could order distribution of the estate to the assignee, but it would be embarrassed by the order against its own fiduciaries, the executors of the estate. Hence complete reversal is the only proper way to avoid unnecessary complications and ambiguity.

Moreover, it is patent that, although the bankrupt's mother did not herself explicitly appeal, she assumed that her rights would be brought before this court ...

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