Opinion
No. 22416
Decided January 21, 1931.
Assignment of wages — Assignment of future earnings under existing contract, valid — Lien effective only as wages earned — Assignment unenforceable against wages earned after assignor's discharge in bankruptcy.
1. An assignment of wages to be earned in the future under an existing employment is valid.
2. The lien created by an assignment of wages to be earned in the future becomes effective only as the wages are earned.
3. Such assignment is unenforceable against an assignor discharged in bankruptcy as to wages earned by him subsequent to the adjudication in bankruptcy.
CERTIFIED by the Court of Appeals of Hamilton county.
This case came into this court on a certification of conflict from the Court of Appeals of Hamilton county ( Rowe v. Public Finance Co., 37 Ohio App. 133, 174 N.E. 164), that court having found its judgment to be in conflict with a judgment pronounced by the Court of Appeals of the Eighth Appellate District in the case of the Co-operative Industrial Finance Company v. Reed et al.
The cause was submitted upon an agreed statement of facts, which may be concisely stated as follows: Walter Rowe on December 12, 1927, borrowed from the Public Finance Company the sum of $400, at that time he executed a wage assignment, signed by himself and wife, which states in substance that for and in consideration of a loan made by the Public Finance Company, in the amount of $400, with charges, including interest at 3 per cent. per month from date, Rowe assigned, transferred and set over to said assignee 50 per cent. of any salary, wages and earnings which may be or become due under any present or future contract of employment from any person, firm or corporation until the full sum thereof is paid, as provided by Section 6346-1 to Section 6346-10, inclusive, General Code. Rowe agreed as agent of the assignee to collect said salary, wages and earnings when due, and to pay over the amount specified to said assignee, and that upon failure to do so the assignee would have the sole right to collect said salary, wages or earnings.
On December 11, 1928, the balance due on said loan was $327.05. On January 15, 1929, Rowe was duly adjudicated a bankrupt in the District Court of the United States for the Southern District of Ohio, and on May 31, 1929, his petition for discharge was filed and is now pending. One of the liabilities listed in his schedule filed in bankruptcy was the said loan of the Public Finance Company, but not setting forth, however, that said loan was secured by a wage assignment.
The plaintiff on December 12, 1927, was in the employ of the Pennsylvania Railroad Company, and ever since has been and now is so employed. On October 10, 1929, the Public Finance Company filed said wage assignment with the Pennsylvania Railroad Company, by virtue whereof said railroad company will withhold 50 per cent. of the plaintiff's earnings until said loan is fully paid. The moneys which said railroad company is holding, or may in the future hold by reason of said assignment, are moneys which have been and will be earned by plaintiff after his adjudication in bankruptcy.
This action was brought by Rowe to enjoin the Public Finance Company from interfering with his employment and to require the Pennsylvania Railroad Company to pay the plaintiff such wages, salary and moneys as are now due, which it is withholding by virtue of such wage assignment.
The common pleas court found in favor of the defendants and dismissed the plaintiff's petition. Upon proceedings in error the Court of Appeals reversed the judgment of the court of common pleas and granted the injunction prayed for.
Mr. H. Henry Sundermann, for plaintiff in error.
Mr. John W. Cowell, Mr. Stuart E. Fletcher and Messrs. Maxwell Ramsey, for defendants in error.
Concisely stated, the legal question presented by the record is whether an assignment of wages to be earned in the future, but under an existing employment, is affected by the discharge of the debtor in bankruptcy, and whether such assignment is enforceable as to wages earned by the assignor after his discharge in bankruptcy.
The wage assignment in question, made to secure a loan of money coincident therewith, was evidently executed pursuant to and in accordance with Section 6346-7, General Code, which section provides in part: "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." The validity of this provision has heretofore been considered and decided by this court, and it has been held that "an assignment of wages to be earned in the future under an existing employment is valid." Rodijkeit v. Andrews, 74 Ohio St. 104, 77 N.E. 747, 5 L.R.A. (N.S.), 564, 6 Ann. Cas., 761. And, again, in the case of American Laundry Machinery Co. v. Daneman, 118 Ohio St. 331, 160 N.E. 897, this court announced a like holding in construing and applying the provisions of the statute limiting such wage assignment to 50 per cent. of the personal earnings of the assignor. Numerous cases are cited in the Rodijkeit case, supra, supporting the conclusion reached. It has therefore been definitely determined that an assignment of future earnings which may accrue under an existing employment is a valid contract.
Under the Bankruptcy Act, one duly discharged as a bankrupt is released from all his provable debts, with certain specified exceptions, and wage assignments are not enumerated as one of such exceptions, yet it is urged that by reason of the provisions of Section 67d of the Bankruptcy Act (Title 11, Section 107(d), U.S. Code) such wage assignment is not affected by the discharge of the debtor in bankruptcy. The provision in question is as follows: "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."
It must be conceded that Congress having power to enact bankruptcy laws, the provisions of any state statute affecting the rights and liabilities of parties to such bankruptcy proceedings are subordinate and subject to the provisions of such bankruptcy statutes. Our specific question, therefore, is whether such wage assignment, executed prior to bankruptcy, without fraud, and to secure a debt contracted simultaneously therewith in all respects in conformity to Section 6346-7, General Code, is a lien such as Section 67d of the Bankruptcy Act (Title 11, Section 107(d), U.S. Code), provides shall not be affected by the Bankruptcy Act. The question as to the effect of wage assignments, at least within the terms of the Bankruptcy Act, has been considered by the Federal District Courts in several cases, and in every instance, based upon like reasoning, those courts have held that such assignment of wages is not enforceable as to wages earned by the assignor after his discharge in bankruptcy. These cases in which this conclusion has been announced by federal courts are In re West, (D.C.), 128 F., 205; In re Lineberry, (D.C.), 183 F., 338; In re Gillespie, (D.C.), 209 F., 1003; and a recent case decided by the District Court of the Northern District of Ohio, In the Matter of Voorhees, Bankrupt, (D.C.), 32 O. L. R., 211, 41 F.2d 81.
A concise statement of the reason upon which is based the conclusion uniformly reached by the federal courts which have had this question before them for consideration may be found in Black on Bankruptcy (4th Ed.), page 1493, Section 1185, with citation of cases, and is as follows: "In regard to an assignment of wages, it appears that a discharge in bankruptcy will not defeat the right of the assignee to recover the wages in so far as the same have been earned and assigned before the discharge, though it will release the bankrupt from personal liability. But an assignment, as security for a debt, of wages thereafter to be earned by the debtor, either under a general or specific employment, creates no lien until the wages have been earned, and where, before that time, the debtor is adjudged a bankrupt and is subsequently discharged, the debt is extinguished from the date of the adjudication, and no lien arises as to wages earned thereafter, but the same become the property of the bankrupt free from the claim of all his creditors, including the assignee."
The view thus announced finds support in the case of Hupp v. Union Pacific Rd. Co., 99 Neb. 654, 157 N.W. 343, L.R.A., 1916E, 247, and also in a decision of the Supreme Court of Montana in the case of Rate v. American Smelting Refining Co., 56 Mont. 277, 184 P. 478. In the former it was held that the assignment created no lien upon the wages of the employee until such wages were really earned, and the debt having been discharged before the wages were earned, it followed that at the time of the commencement of such action the plaintiff had no right to recover against the defendant by reason of such assignment. In the latter case it was held that while an assignment of wages to be earned in the future under an existing employment is valid, yet a discharge in bankruptcy extinguished the lien or assignment to the creditor as to all wages earned by the bankrupt subsequent to the date of the adjudication in bankruptcy.
A contrary view is presented in the holding of the Supreme Court of Massachusetts in the case of Citizens Loan Assn. v. Boston Maine Rd. Co., 196 Mass. 528, 82 N.E. 696, 14 L.R.A. (N.S.), 1025, 124 Am. St. Rep., 584, 13 Ann. Cas., 365, and by the Supreme Court of Illinois in the case of Mallin v. Wenham, 209 Ill. 252, 70 N.E. 564, 65 L.R.A., 602, 101 Am. St. Rep., 233, which cases hold that such lien is preserved by Section 67d of the Bankruptcy Act and not affected by the discharge in bankruptcy of the assignor.
We are of the opinion that the better reasoning supports the position of the federal courts above cited. As pointed out in those cases, the discharge of the bankrupt, when granted, relates back to the date of the adjudication in bankruptcy, and property acquired by the bankrupt subsequent to the adjudication in bankruptcy is not appropriated to the payment of his debts. Wages earned subsequent to the adjudication in bankruptcy are like property acquired by the bankrupt subsequent to the adjudication in bankruptcy, and, under the plain purpose of the Bankruptcy Act, cannot be subjected to the payment of debts contracted prior to the adjudication in bankruptcy.
It follows that the mandatory order requiring the payment of wages earned since plaintiff's adjudication in bankruptcy should have been issued. The judgment of the Court of Appeals is therefore affirmed.
Judgment affirmed.
MARSHALL, C.J., JONES, DAY, ALLEN, KINKADE and ROBINSON, JJ., Concur.