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There can be little doubt that an assignor's retention of funds previously assigned to a third party amounts to an "injury" to the property of the assignee within the meaning of § 17(a)(2) of the Bankruptcy Act, codified at 11 U.S.C.S. § 35(a)(2). Where an employee, in good faith and for a valuable consideration, sells, transfers, and assigns his title and right to possession of a stipulated amount of salary due him by his employer, and thereafter collects the money thus transferred, he cannot, as against a suit for recovery of the money, avail himself of a discharge in bankruptcy as a defense. The instrument of transfer is an assignment of title. One who thus disposes of property without the authority of its owner is guilty of a willful and malicious injury to property, within the meaning of § 17(a)(2), and consequently his liability is not released by a discharge in bankruptcy.
Coolidge Bank and Trust Co. (the bank) petitioned the bankruptcy judge to have a debt of the bankrupt, James S. Nance, declared non-dischargeable. After an evidentiary hearing, the bankruptcy judge determined that the bankrupt had willfully and maliciously converted $24,000.09 which was the property of the bank, and that the bankrupt's liability to the bank for this amount was a non-dischargeable debt under section 17(a)(2) of the Bankruptcy Act, 11 U.S.C. § 35(a)(2). Nance appealed this ruling to the district court, which reversed on the ground that the Massachusetts "Assignment of Wages" statute, Mass. Gen. Laws Ann. ch. 154, had invalidated Nance's attempted assignment of deferred salary to the bank. The bank appealed. The bank argued that the district court erred in ruling that the bankrupt's assignment of his claim to deferred income was invalid for failing to comply with the conditions set forth in Mass. Gen. Laws Ann. ch. 154, § 3. Nance alleged that the debt was dischargeable because the bank never received an assignment from him, and that, even if it had, his actions did not amount to a willful and malicious conversion.
Did the bankruptcy judge err in ruling that Nance's retention of funds received in settlement of his claim amounted to a willful and malicious conversion of the bank's property?
The court found that the assignment of contract was plainly invalid as an assignment for future wages and that the trust instrument, standing alone, could not be construed as an assignment. However, the court held that the demand note, which consolidated all prior indebtedness into one instrument, expressly listed the trust instrument as collateral security. The court found that the exemption from assignment in § 3 of wages to be earned in the future did not apply to income Nance had already earned but the receipt of which has been postponed past the usual payment cycle. The court also held that Nance’s retention of the funds unreasonable and done deliberately and intentionally in knowing disregard of the rights of the bank.