UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
decided: October 14, 1965.
IN THE MATTER OF TRANS-UNITED INDUSTRIES, INC., DEBTOR. RYWELLE ASSOCIATES, INC., PETITIONER-APPELLANT,
ROBERT E. COHN, TRUSTEE, RESPONDENT-APPELLEE, TEXTILE BANKING COMPANY, INTERVENOR
Friendly and Kaufman, Circuit Judges, and Bryan, District Judge.*fn*
Author: Per Curiam
Rywelle Associates, Inc. ("Rywelle") appeals from an order of Judge Blumenfeld denying its petition to reclaim 726 shares of stock in the United Metal Cabinet Corporation ("Metal") over the objection of Robert E. Cohn, Trustee in Bankruptcy ("Trustee") of Trans-United Industries, Inc. ("T-U"). On December 30, 1960, while still solvent, T-U entered into an agreement with Samuel and Nathan Hammer to purchase from them 726 shares of Metal stock. In June 1962, T-U sought to obtain a $600,000 loan from Textile Banking Company ("Textile"), to which it had already mortgaged most of its assets to secure prior outstanding loans of approximately $5,000,000. Textile considered itself in an over-advanced position and obtained Rywelle's participation in 50 per cent of the loan. Rywelle deposited $300,000 with Textile and Textile advanced the $600,000 to T-U, released the old mortgages and accepted in exchange certain new collateral. Part of the new collateral was an October 31, 1962, "assignment" of T-U's rights in the contract to purchase the Metal stock.
In April 1963, T-U filed a Chapter X petition in Bankruptcy. The trustee, with the permission of the court, borrowed a further sum from Textile and paid the balance of the purchase price for the Metal stock to the Hammers. The stock certificate was not delivered to Textile prior to the bankruptcy because it was being held as collateral to secure payment of the full purchase price. The instrument embodying the October 1962 assignment was never recorded.
On October 16, 1964, pursuant to a settlement of Rywelle's suit against it for an accounting and return of the $300,000 previously advanced, Textile assigned to Rywelle all its rights in the Metal stock. Rywelle then commenced this reclamation proceeding, claiming that it had superior rights in the stock to those of the trustee.
We agree with Judge Blumenfeld that Rywelle, stepping into the shoes of its assignor Textile, had rights in the stock subordinate to those of the trustee. Although the agreement of October 31, 1962, was labeled an "assignment," by its very terms it created only a security interest, which was never perfected (as it could have been) by a transfer of possession or recording under New York Lien Law, § 230, McKinney's Consol. Laws, c. 33.*fn1 Since the trustee obtains all the rights of a hypothetical lien creditor on the date of bankruptcy (§ 70, sub. c of the Bankruptcy Act, 11 U.S.C. § 110, sub. c), the unperfected security interest was subordinate to his interest in the stock. Sammet v. Mayer, 108 F.2d 337 (2d Cir. 1939). Finally, even if Textile purported to assign to Rywelle rights good as against the trustee, it could not effectively do so; an assignee gets no better rights than those of his assignor.*fn2