#### GODWIN et al. v. MURCHISON NATIONAL BANK et al.

(Filed 30 October, 1907).

1. Bankruptcy — Title of Trustee — Claim against Bankrupt.

A trustee in bankruptcy is, in general, vested with no better title to tbe property than the bankrupt had; so that, in the absence of some express provision of the Bankruptcy Act, a claim against certain of the bankrupt’s assets, valid as against him, will be upheld against the trustee, unless in contravention of public policy or some established legal principle.

2. Same' — -Assignments by Bankrupt — Validity—What Law Governs.

Unless the Bankruptcy Act otherwise provides, the validity of, an assignment of a bankrupt’s property must be determined according to the principles of local law.

3. Assignment — Validity—Possession of Res.

Where a person having a contract by which he was to receive bonds in payment for real estate contracted to assign the bonds to a bank in consideration for present loan, it was no objection to such contract to assign that at the time it was made he had not possession or control of the bonds.

4. Bankruptcy — Equitable Assignment — Executed Contract.

A debtor, having sold certain real estate in exchange for bonds which he was to receive on the purchaser’s acceptance of the title, more than four months before he became a bankrupt, agreed verbally to transfer the bonds to defendant bank if the bank would *321then loan him $10,000, which was done. The bonds not haying been delivered promptly, a written contract was made within the four-months period, assigning to the bank all the bankrupt’s right to the -price of the land, and shortly after this the bonds were actually delivered to and assigned in writing to the bank: Held, that the words “agreed to transfer,” in the oral contract, imported an agreement to “deliver,” so that that agreement constituted an equitable assignment of the bonds, to be delivered on their receipt by the bankrupt.

5. Words and Phrases — “Transfer.”

Under the Bankruptcy Act, 1 July, 1898, ch. 541, p. 1, 30 Stat., 544 (U. S. Comp. St. 1901, 3418), providing that the term “transfer” shall include a sale and every other, mode of disposing of or parting with property, or the possession thereof, as a payment, pledge, mortgage, gift or security, an agreement to “transfer” property may be construed as an agreement to “deliver.”

6. Same — Assignment—Validity.

A bankrupt, more than four months before bankruptcy, contracted to deliver certain bonds to defendant bank, which he was to receive under a land contract in consideration of the bank’s agreement to make a present loan to him. The bankrupt, within the four-months period, assigned in writing the proceeds of the real estate, and later, on receiving the bonds, assigned and delivered them to the bank: Held, that on such delivery the bank’s title vested as of the date of the original equitable assignment, and was, therefore, valid under the rule that a contract, to create a positive lien, attaches in equity as soon as the assignor acquires title, both as against him and all persons claiming under him, either voluntary or with notice or in bankruptcy.

7. Same — Bona Fide Purchaser — Notice—Registration.

Where a bankrupt made a present equitable assignment, for a cash consideration, of certain bonds which he was to receive in payment for land, the bonds to be delivered or transferred to defendant when they came into the bankrupt’s possession, .and to be then appropriated to the bankrupt’s indebtedness as far as they would pay the same, the sale of the land having been completed according to the contract', the bank’s right to the bonds as the proceeds of the sale was not affected by the registration laws concerning sales of realty.

Civil actioN, tried before Jones, J., and a jury, at February Term, 1907, of the Superior Court of HaRNett County.

*322Tbe action was brought by the trustees in the matter of E. E. Young, bankrupt, to recover the interest of the bankrupt’s estate in $4,500 of Norfolk city bonds, said interest amounting to $3,150, as shown by the verdict, and under claim and allegation on the part of the trustees that the said bonds were transferred to defendant bank under circumstances which made such transfer a voidable preference under the Bankruptcy Act, by reason of same having been made within four months prior to the filing of petition in bankruptcy, etc. Defendant bank, admitting that a written assignment of the bonds and actual delivery of same had been made within the four months, as alleged, claimed that such action was not a voidable preference, by reason of the fact that same was in pursuance of a valid and binding agreement entered into prior to the four months, and which gave to defendant an unimpeachable title to the property. It was shown that proceedings of involuntary bankruptcy (In re F. F. Young), followed by adjudication, were instituted on 4 June, 1904; that the written assignment was made on 9 February, 1904, delivery of bonds being made shortly thereafter, and within the four months, as stated, and the alleged agreement was entered into on 9 December, 1903, prior to four months. At that tim'e the bonds in question had not been obtained or received by the bankrupt, but were to be turned over to him in payment of some real estate which the bankrupt had theretofore sold to Charles W. Priddy (Incorporated), of Norfolk, Ya.

On the trial, issues were submitted, and responded to by the jury, and judgment had thereon, as follows:

“1. In what'amount, if any, was E. E. Young indebted to defendant bank, 9 February, 1904, by reason of endorsement or otherwise? Answer: $34,000.

“2. Did E. E. Young, within the period of four months immediately preceding 4 June, 1904, transfer, by writing, to *323the defendant bank tbe $4,500 Norfolk city bonds, and if so, what was the cash value of same ? Answer: Yes; $4,400.

“3. Was the said E. E. Young insolvent on 9 February, 1904, and did he so continue up to and including 4 June, 1904? Answer: Yes.

“4. Did the defendant or its agents, at time of the transfer of the $4,500 Norfolk city bonds, as alleged in the complaint, have reasonable cause to believe that such transfer was intended as a preference to the defendant bank by said E. F. Young? Answer: Yes.

“5. Did the defendant E. F. Young, in December, 1903, agree verbally with the defendant to transfer to said bank the Norfolk city bonds of $4,500 if said defendant bank would loan the said E. E. Young for Merchants and Farmers Bank $10,000 and the South Dunn Manufacturing Company $10,000, and did the defendant bank make said loans as agreed ? Answer: Yes.

“6. Did E. F. Young, in furtherance of the agreement of December, 1903, -execute the paper-writing of 9 February, 1904? Answer: Yes.

“7. Did the transfer of the $4,500 Norfolk city bonds to defendant bank enable the defendant bank to obtain a greater percentage of its debt .against E. E. Young than other creditors in the same class as the bank obtain ? Answer: Yes.

“8. What interest did E. F. Young have in the $4,400 received by the defendant bank from a sale of the Norfolk city bonds? Answer: $3,150, with interest from 1 March, 1904, at 6 per cent.

“It having been admitted of record that petition in bankruptcy was duly filed against said E. F. Young on the 4th day of June, 1904, and that subsequently he was duly adjudged a bankrupt, and that the plaintiffs are the duly chosen, qualified and now acting trustees of said Young in bankruptcy, and that the defendant is a duly chartered, organized and existing banking institution under the laws of the United *324States, now, upon motion of tbe counsel for plaintiffs, it is considered, ordered and adjudged tbat tbe plaintiffs in this action, R. L. Godwin, J. D. Barnes and J. M. Hodges, trustees, do recover of tbe defendant in tbis action, Tbe Murchison National Bank, tbe sum of $3,150 and interest on tbat sum from 1 March, 1904, and tbe cost of tbis action, to be taxed by tbe Clerk of tbis Court. E. B. J ONES,

“Judge Presiding

Thereupon defendant bank excepted and appealed.

Godwin & Davis, D. Ii. McLecm and B. L. Godwin for plaintiffs.

E. K. Bryan and Shepherd & Shepherd for defendants.

IioKE, J.,

after stating tbe case: Tbe verdict "of tbe jury on tbe fifth and sixth issues was as follows:

> “5. Hid tbe defendant E. E. Young, in December, 1903, agree verbally with tbe defendant bank to transfer to said bank tbe Norfolk city bonds of $4,500 if said defendant bank would loan tbe said E. E. Young for Merchants and Farmers Bank $10,000 and tbe South Dunn Manufacturing Company $10,000, and did tbe defendant bank make said loans as agreed ? Answer: Yes.

> “6. Did E. F. Young, in furtherance of tbe agreement of December, 1903, execute tbe paper-writing of 9 February, 1904? Answer: Yes.”

And tbe paper-writing referred to and established by tbe sixth issue, and tbe response thereto, contains tbe following recital as to tbe agreement between defendant bank and E.. E. Young, of date December, 1903, and more than four months prior to tbe institution of tbe proceedings in bankruptcy: “Witnesseth, tbat, whereas tbe Merchants and Farmers Bank, of Dunn, N. C., is indebted to tbe Murchison National Bank, of Wilmington, N. C., in a large sum of money which was loaned to tbe Merchants and Farmers Bank and tbe South Dunn Manufacturing Company, at tbe request of tbe party *325of tbe first part; and, whereas, at tbe time of said loans tbe party of tbe first part agreed with tbe said Murchison National Bank that if it would make said loans that tbe party of tbe first part bad sold three brick stores in tbe town of Dunn, N. C., to one Charles W. 'Priddy (Incorporated), of Norfolk, Va., and that tbe deed of said'stores was to be made when the abstracts of title for said stores bad been approved by said Priddy (Incorporated), and the purchase money was paid, and it was agreed by the said parties hereto that, if tbe said Murchison Bank would make said loans, tbe party of tbe first part would pay over the money derived from said sale, to-wit, tbe sum of $4,500, to tbe party of tbe second part, on account of tbe indebtedness then created to tbe said party of tbe second part; and, whereas, there has been more delay in consummating said sale than was anticipated, and tbe said party of tbe first part is desirous of carrying out said agreement: Now, therefore, in consideration of tbe premises, tbe said party of tbe first part doth hereby transfer and assign, sell and convey to tbe said party of tbe second part all bis right, title, interest .and estate in tbe three stores bargained to Priddy Company (Limited), and tbe purchase price thereof, when same is received on tbe consummation of tbe sale.” There is no allegation of fraud in tbe transaction between these parties in December, nor that tbe same was bad with any intent to evade tbe general policy or express provisions of tbe Bankruptcy Act. This being true, on tbe facts established by these two findings, tbe Court is of opinion that, for a present cash consideration then passing, a claim was created in favor of defendant to these bonds, tbe purchase price of tbe property referred to in tbe agreement, which .attached as soon as they passed in consideration for tbe sale, good against tbe bankrupt himself, and enforcible in equity against tbe plaintiffs bolding tbe estate as trustees under tbe bankruptcy proceedings, and there is nothing in tbe verdict on tbe other issues which destroys or impairs tbe force .and effect of this *326position — tbe word “transfer,” in the fourth, issue, evidently having the same significance as in the fifth.

It is accepted doctrine that, as a general proposition, the trustee in bankruptcy is vested with no better right or title to the property than the bankrupt had when the trustee’s title accrued. And, unless in contravention of some established principle of law or public policy, or some express provision of the Bankruptcy Act, a claim valid against the bankrupt will be upheld against his trustee. Manufacturing Co. v. Cassell, 201 U. S., 334-352; Hewitt v. Berlin Machine Works, 194 U. S., 296; Smith v. Godwin, a decision at present term; Loveland on Bankruptcy (2d Ed.), 368. As said in this last citation (Loveland, supra) : “The trustee takes the title of the bankrupt subject to all equities, liens or encumbrances, whether created by operation of law or by the act of the bankrupt, which existed against the property of the bankrupt, except in cases of levies, judgments, attachments or other judicial liens created against the property within four months preceding the commencement of proceedings in bankruptcy, and except in cases where the disposition of property by the bankrupt is declared to be fraudulent.and void.” It is also established that, unless the Bankruptcy Act otherwise provides, the validity of an assignment or claim is to' be determined in accordance with the principles of local law. Thompson v. Fairbanks, 196 U. S., 516; Humphrey v. Tatman, 198 U. S., 91.

And it will be observed that, under our law, no valid objection can be urged against the defendants’ claim by reason of the fact that the bonds, the subject-matter of the contract, and which represented the purchase price of the property, were not in the possession or control of the bankrupt when the agreement of December was entered into. On the contrary, unless inhibited by some principle of public policy, our decisions expressly uphold and enforce such contracts, both as to tangible property and choses in action, to vested as well as *327contingent interests. Brown v. Dail, 117 N. C., 41; Williams v. Chapman, 118 N. C., 943; Chemical Co. v. McNair, 139 N. C., 326; Nelson v. Edwards, 40 Barbour, 283.

Applying these principles, we are of tbe opinion that tbe force and effect of tbe verdict is to establish, for a cash consideration, to-wit, tbe loan, an equitable assignment of these bonds, the purchase price of the property in December, 1903, the date when the contract was made, to be consummated by delivery of the bonds whenever and as soon as they came into the control of E. E. Young pursuant to the sale which was then being conducted. "While the language of the issue, “verbally agreed to transfer,” might be construed as constituting an executory agreement, when taken in connection with the pleadings .and evidence, and especially in reference to the more explicit ascertainment of the terms of the December trade, made a part of the verdict on the sixth issue, we think that a present equitable assignment was thereby created, and the words “agree to transfer” clearly referred to an .agreement to “deliver” the bonds whenever the same came to hand. This meaning of the term “transfer” is recognized in the definition of the word given by the Bankruptcy Act, United States Statutes at Large, Vol. XXX, ch. 541, sec. 1, has been applied in various decisions rendered in administration of the law (Words and Phrases Judicially Defined, Vol. VIII, 7066), and is so clearly the significance contemplated by the parties in the transaction, as established by the verdict, that we have no hesitation in holding, as stated, that the contract amounted to a present equitable assignment in December, more than four months prior to the institution of the bankruptcy proceedings, and the right of defendants to the bankrupt’s interest in these bonds is supported by well-established principles of equity and by the great weight of authority. Walker v. Brown. 165 U. S., 655; Hauseet v. Harrison, 105 U. S., 401; Union Trust Co. v. Bulkely, 150 Fed., 510; In re J. F. Grandy & Son, 146 Fed., 318; Wilder v. Watts, 138 Fed., *328 436; Sabin v. Camp, 98 Fed., 914; Smith v. Godwin, trustee, supra; Brem v. Covington, 104 N. C., 589; Lawson v. Pringle, 98 N. C., 450. See, also, a very full and learned note by the editor to case of Moody v. Wright, reported in 46 Amer. Decisions, 106-117 (tbe case being from 13 Met., 17). In this last reference, on page 717, it is said: “Tbe grounds of these decisions are, that the mortgage, though inoperative as a conveyance, is operative as an executory contract, which attaches to the property when acquired, and, in equity, transfers the beneficial interest to the mortgagee, the mortgagor being held as trustee for him, in accordance with the familiar maxim that equity considers that done which ought to be done: per Durfee, G. Jin Williams v. Briggs, 11 R. I., 478. The ease of Mitchell v. Winslow, 2 Story, 630, is a leading American case upon this subject. A mortgage was given in that case by two manufacturers of cutlery upon all the tools and machinery in their manufactory and upon all the tools and machinery which they might purchase within four years, and all stock that they might manufacture during the same time. It was held to create a good, equitable lien, and was protected as such under the Bankruptcy Act. At page 644, Btory, J., said: Tt seems to me a clear result of all the authorities that, wherever the parties, by their contract, intend to create a positive lien or charge, either upon real or upon personal property, whether then owned by the assignor or contractor or not, or, if personal property, whether it is then esse or not, it attaches in equity as .a lien or charge upon the particular property as soon as the assignor or contractor acquires a title thereto- against the latter, and all persons asserting a claim thereto under him, either voluntarily or with notice, or in bankruptcy.’ ” And in Walker v. Brown the general doctrine is stated thus, citing with approval Pomeroy’s Equity, Yol. Ill, 1235: “Every express execu-tory agreement in writing, whereby the contracting party sufficiently indicates an intention, to make some particular prop*329■erty, real or personal, or fund, therein described or identified, a security for a debt or othqr obligation, or whereby the party promises to convey or assign or transfer the property as security, creates an equitable lien upon the property so indicated, which is enforcible against the property in the hands, not only of the original contractor, but of his heirs, administrators, executors, voluntary assignees and purchasers,, or encumbrances with notice.”

By the contract of December, 1903, when these bonds came into his possession and control, E. E. Young had no right to deal with them, except to deliver them to the defendant bank, as required by its terms. On the equitable principle which ■considers that done which the parties are under a binding-agreement to do, said Young had no right to make any other disposition of this specific property. This is the principal test by which an equitable assignment may be distinguished from an executory agreement to assign, and a case is presented where the claimant has a right tó the specific property against the bankrupt himself, and where, in the absence of some interfering State regulation or of some adverse provision of the Bankruptcy Law itself, the defendants’ right is enforcible against the trustee. It is this creation of a present interest in the bonds themselves, amounting to an equitable assignment thereof, which differentiates the present case from many of those cited and relied upon by the plaintiff trustees. Some of these were cases where, from the very general terms of the agreement, no right in .any specific property was acquired at all. In others, from the nature of the interest, or by reason of some interfering principle of positive law or public policy, no right in any specific property was created, except within the period when it'was avoided by express provisions of the Bankruptcy Law itself. Thus, in Sheridan’s case, 98 Fed., 406, there was an executory .agreement to pledge property made prior to the four months, and the property was .actually delivered within such period. By the very nature of *330a pledge, no interest passes until delivery, and tbis was on that ground avoided as a prohibited preference.

In several other decisions an executory agreement to give a chattel mortgage made prior to the four months was not allowed to validate the mortgages executed or registered within the prohibited period. In re Great Western Manufacturing Co., 152 Fed., 123; Loeser v. Bank and Trust Co., 148 Fed., 975; In re Dismal Swamp Co., 135 Fed., 415. These and other like cases, .as we apprehend them, were decided either because of some State law which avoided such mortgages against creditors, except from registration, or by reason of the amendment to the Bankruptcy Act made in February, 1903. Yol. XXXII, Statutes at Large (Part I), ch.' 487, to the effect that, “Where a preference consists in a transfer, such period of four months shall not expire until four months after the recording and registering of the transfer, if by law such recording and registering is required.-” And this requirement of registration distinguishes a decision of our own Court. Lance v. Tainter, 137 N. C., 249.

Without going into .a careful analysis of these decisions, which could serve no good purpose and would unduly lengthen our opinion, we deem it sufficient to say that they do not apply here. This case presents no executory agreement to make a pledge of personal property as security for a past indebtedness, nor is it an executory agreement to give a chattel mortgage or other lien which requires registration, either by State law or the Bankruptcy Act and its amendments. But, as we have endeavored to show, it is a present equitable assignment for a cash consideration of the bonds, to be delivered or “transferred” to the defendant bank whenever they come into possession of the bankrupt,' and to be then appropriated to the indebtedness as far as they would pay the same.

Since the opinion was prepared, it has been earnestly contended that, inasmuch as the contract under which the defendants claim the bonds applies also in terms to realty, the *331case of Lance v. Tainter, supra, is direct authority against tbe defendants’ claim. This position might avail the plaintiffs if the sale of the land had not been carried out and the defendants were seeking to establish their claim against the land itself. The sale, however, was completed according to the contract with the Norfolk company, and this litigation is over the proceeds. Our registration laws concerning realty have, therefore, no application to the cause, on the principle established in the decisions of Bourne v. Sherrill, 143 N. C., 381, and the authorities therein cited.

We are of opinion, therefore, and so hold, that there was error in the judgment as rendered, and that, as a conclusion of law on the verdict as it now stands, there should be judgment entered that defendants go without day. Let this be certified and judgment entered accordingly.

Eeversed.

EeowN, <L, did not sit.