Opinion
Decided June 2, 1930.
Bankruptcy — Discharge releases prior assignment of unearned wages — Unearned wages not subject to lien — Assignment for debt did not create lien unaffected by discharge.
1. Wages to be earned are not "property" subject to lien, as there can be no lien on what does not exist.
2. Assignment of wages to be earned given to secure loan could not be effective, where debtor had been released from debt under Bankruptcy Act (Bankruptcy Act, Sections 17 and 67 d, Title 11, Sections 35 and 107 (d), U.S. Code; Section 6346-7, General Code).
3. Assignment of wages to be earned as security for debt did not create "lien" which was not released by discharge in bankruptcy (Bankruptcy Act, Sections 17 and 67 d, Title 11, Sections 35 and 107 (d), U.S. Code; Section 6346-7, General Code).
ERROR: Court of Appeals for Hamilton county.
Mr. John W. Cowell and Mr. Stuart E. Fletcher, for plaintiff in error.
Mr. H. Henry Sunderman, for defendant in error Public Finance Company.
Messrs. Maxwell Ramsey, for defendant in error Pennsylvania Railroad Company.
Plaintiff in error, Walter Rowe, received his discharge as a bankrupt in a voluntary bankruptcy proceeding. Prior to the filing of the petition in bankruptcy he had procured a loan from the defendant in error finance company in the sum of $400, and simultaneously therewith had executed and delivered an assignment of 50 per cent of his wages to be earned from the Pennsylvania Railroad Company, with which company he was at the time an employee.
Plaintiff in error denies the right of the defendant in error, the finance company, to receive the 50 per cent of his wages earned after the discharge in bankruptcy.
Plaintiff in error alleges in his petition that among the liabilities listed in his schedule was a claim of the finance company in the amount of $327.95, that the finance company has filed his assignment of earnings with the Pennsylvania Railroad Company, that the railroad company is now and will continue to withhold the plaintiff's wages until said wage assignment is paid or released by law, that the railroad company is now holding and will continue to hold the future wages, or earnings, that will be earned by the plaintiff in error subsequent to his adjudication in bankruptcy, prays for a temporary order restraining the finance company from interfering with plaintiff's employment, and asks that a temporary injunction be issued against the Pennsylvania Railroad Company, ordering it to pay all wages, salaries, or moneys due this plaintiff, which it is holding by virtue of said wage assignment, and that the defendants be restrained from further honoring said assignment and withholding plaintiff's wages.
The case was presented on an agreed statement of facts, which is in the record.
Upon consideration, the trial court refused the relief sought, and dismissed the plaintiff's petition.
The sole question presented here is whether or not a discharge in bankruptcy releases the bankrupt from the payment of the loan and from all liability under the wage assignment given to secure the loan.
The Bankruptcy Act, Section 17 (Title 11, Section 35, U.S. Code), provides: "A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except * * *." Thereupon follow six exceptions, none of which mentions wage assignment.
Paragraph d of Section 67 of Bankruptcy Act (Section 107 of Title 11, U.S. Code), provides: "Liens given or accepted in good faith and not in contemplation of or in fraud upon the provisions of this title, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall, to the extent of such present consideration only, not be affected by anything herein."
Is a wage assignment a lien upon the future wages or earnings of the plaintiff in error within the meaning of paragraph d of Section 67 of the Bankruptcy Act.
The cases are not uniform on the question in so far as the state courts are concerned.
The federal decisions are to the effect that the wage assignment does not create a lien on wages to be earned in the future; that wages to be earned are not property, and there can be no lien on what does not exist. In re West, (D.C.), 128 F., 205; In re Lineberry, (D.C.), 183 F., 338; In re Home Discount Co., (D.C.), 147 F., 538.
In the case of In re Home Discount Company, supra, the court made the pronouncement that an assignment of wages did not create an existing lien within the terms of the Bankruptcy Act, exempting valid and existing liens from the operation of a discharge in bankruptcy.
While it is true that in the Discount Company case the court found that under the laws of Alabama the assignment was contrary to public policy and void, it did state the proposition above quoted.
To the same effect is the decision in the United States District Court, Southern District of Ohio, in the case of In re Karns, 148 F., 143, 16 Am. Bankr. Rep., 841.
It is argued that the statute of Ohio legalizing the assignment of future earnings or wages will not be affected by the Bankruptcy Act, since the state law is not in conflict with the act.
We cannot accede to the proposition that the section of the statute, Section 6346-7, General Code, is not in conflict with the Bankruptcy Act.
Section 6346-7, General Code, provides among other things: "No assignment of any salary, wages or earnings, or any part thereof given to secure a loan * * *. Any assignment of wages, salary or earnings, made in accordance with the provisions of this section shall bind the wages, salary or earnings earned or to be earned by the assignor until the loan secured by such assignment and interest thereon is fully paid."
We have, therefore, the situation that a loan was made by the finance company to the plaintiff in error; that to secure the loan, as provided in the statute, he made an assignment of his future earnings. We have in the Bankruptcy Act the provision, as above stated, that a discharge in bankruptcy shall release the bankrupt from all his provable debts, with six exceptions, and the wage assignment is not one of the exceptions. Under the express provisions of the Bankruptcy Act the bankrupt is released from the payment of the loan. Section 6346-7, General Code, as above quoted, authorizes the assignment of wages or earnings to secure a loan. If the plaintiff in error is released under the Bankruptcy Act from the payment of the debt or loan, how then may any security given therefor be effective?
The defendant in error the finance company relies largely on the case of Citizens Loan Association v. Boston Maine Rd. Co., 196 Mass. 528, 82 N.E. 696, 697, 14 L.R.A. (N.S.), 1025, 124 Am. St. Rep., 584, 13 Ann. Cas., 365, in which case the Supreme Court of Massachusetts held that the discharge of a bankrupt did not cancel the assignment of future earnings. The reasoning of the court in the case of Citizens Loan Assn. v. Boston Maine Railroad is indicated in the following statement in the opinion: "It is plain that one may sell wool to be grown upon his own sheep, or a crop to be produced upon his own land * * *."
This would indicate that the court considered the assignment of wages as a sale of a commodity. That a sale of futures is valid cannot be gainsaid. But that is a sale of property to be produced. Undoubtedly if the assignment of wages was a sale of property to be produced, such would become the property of the finance company immediately upon having been earned, and the discharge in bankruptcy would not affect that sale. But the assignment is not claimed and cannot be considered under the statute of Ohio to be a sale of property. The statute says it is given to secure the payment of a loan. Moreover, Section 6346-7, General Code, provides: "Nor shall any such assignment be valid unless * * * made to secure a debt."
Not being a lien, then paragraph d of Section 67 of the Bankruptcy Act affords no protection to the finance company.
Having determined that there is no lien, the bankrupt having been released from the payment of the loan constituting the debt, we are of opinion that the assignment must fall and is unenforceable as against the bankrupt.
In view of the fact that this decision is in conflict with the decision of the Court of Appeals of the Eighth Appellate District in the case of Co-Operative Industrial Finance Co. v. Reed, decided October 25, 1928, necessitating the certification of the case to the Supreme Court, we will not extend this memorandum further.
Our conclusion is that the plaintiff in error is entitled to the injunction and a mandatory order commanding the railroad company to pay to the plaintiff in error the accrued wages. The judgment of the court of common pleas of Hamilton county is, therefore, reversed, and, there being no dispute as to the facts, judgment will be entered in this court for the plaintiff in error.
Judgment reversed and judgment for plaintiff in error.
CUSHING, P.J., and Ross, J., concur.