a prior assignee simply by giving notice to the debtor, there are certain circumstances under which an assignment may be defeated by a bona fide purchaser. These instances are set out in the Restatement of the Law of Contracts, section 173, which adopts the Massachusetts rule. Under this rule an assignment may be defeated by a subsequent assignee who acts in good faith, if the subsequent assignee receives payment of the assigned account, obtains a judgment against the obligor, obtains a new contract with the obligor by means of a novation, or receives the delivery of a tangible token or writing, surrender of which is required by the obligor's contract for its enforcement. The court held therefore that, under either rule, Section 60, sub. a of the Bankruptcy Act made the assignments invalid as against the trustee in the case of Vardaman Shoe Co., supra.
'Under the rule of Jenkinson v. New York Finance Co., the assignment to Standard Factors Corporation became complete on November 18, 1942, when Standard Factors Corporation notified the customers of the bankrupt. Under the rule of Moorestown Trust Co. v. Buzby, supra, at any time up to the filing of the petition in bankruptcy, a bona fide purchaser could have defeated the assignments to the Standard Factors Corporation by obtaining payment of the accounts, obtaining a judgment upon them, or by means of a novation. (Section 173 of the Restatement of the Lew of Contracts is cited in Moorestown Trust Co. v. Buzby, supra, 109 N.J.Eq.at page 412, 157 A. 663). Whether the rule of Jenkinson v. New York Finance Co. or the rule of Moorestown Trust Co. v. Buzby represents the law of New Jersey, the assignments to the Standard Factors Corporation constituted preferences under Section 60, sub. a of the Bankruptcy Act. In re Vardaman Shoe Co., supra.
'Under the rule of Jenkinson v. New York Finance Co., the assignments became effective on November 18, 1942. Under the rule of Moorestown Trust Co. v. Buxby, the assignments became effective on November 23, 1942, when the petition in bankruptcy was filed. In either event the assignments were given to secure antecedent debts, as the money had been advanced by Standard Factors Corporation long before either of these dates. The bankrupts were insolvent on both dates. The effect of the assignments on either date would be to give the Standard Factors Corporation a greater percentage of its debt than other creditors would receive. This appear from an inspection of the schedules and the testimony of the accountant. Standard Factors Corporation, on both of these dates had reasonable cause to believe that the bankrupts were insolvent.
'I conclude, therefore, that the transfers to Standard Factors Corporation are preferences and invalid as against the trustee in bankruptcy.'
The two New Jersey cases last above cited are in conflict, and since they have their origin in the same court, the later case establishes the law to be followed here. By the opinion in the earlier case New Jersey took its position among those states which require notice to perfect an assignment. This occurred in the year 1911, but in the Moorestown Trust Co. case some 21 years later (1932) the court took the opposite view and placed New Jersey among those states wherein an assignment may ee perfected regardless of notice and this position is maintained by the new Jersey Court of Chancery down to this writing. For present purposes emphasis should be placed upon this rule of law and it ought not to be weakened or dissipated by decisions handed down in jurisdictions where a contrary rule as to notice obtains. The Bankruptcy Act alone can qualify or limit its effect here.
Each of the assignments with which we are dealing were bona fide and fully consummated when executed, as will appear from the undisputed evidence in the record. That the trustee can take no greater estate than that of the bankrupt is the generally accepted rule and in the absence of some provision to the contrary in the Bankruptcy Act the conclusion here must be that these assignments are valid as against the trustee.
In Corn Exchange Bank v. Klauder, 318 U.S. 434, 63 S. Ct. 679, 681, 87 L. Ed. 884, 144 A.L.R. 1189, the court was dealing with a problem bearing on the sufficiency of assignments under Sec. 60, sub. a of the Bankruptcy Act and in the light of the substantive law of Pennsylvania, a state requiring notification to sustain an assignment. From this case it appears that the Supremem Court has not as yet changed the rule as to the application of state law on such issues. Referring to Sec. 60, sub. a, the court says: 'Its apparent command is to test the effectiveness of a transfer, as against a goodfaith purchaser. Only when such a purchaser is precluded from obtaining superior rights is the trustee so precluded.' The court then continues: 'So long as the transaction is left open to possible intervening rights to such a purchaser, it is vulnerable to the intervening bankruptcy.'
This leads to a consideration of the law of New Jersey and what the possible intervening rights may be in this state. It is, of course, obvious here as elsewhere that 'one cannot have his cake and eat it too' so if the assignments were perfected and valid when and where made, they remain valid against the trustee, and he takes nothing which the bankrupt had theretofore, validly disposed of. However, under the rule in the Corn Exchange Bank, supra, and the insertion therewith of Section 173 of the Restatement of the Law of Contracts it is found by the Referee that such completed assignments may subsequently be construed as having been made 'immediately before bankruptcy.' He holds that the assignments here may be constructively so re-dated upon some four premises found in Section 173 of the Restatement of the Law of Contracts. It is necessary therefore to consider separately each of these premises and ascertain their effect with special reference to New Jersey law and the intent of Sec. 60, sub. a of the Act.
(1) The Referee concludes that these assignments may be construed as above stated in point of time, 'if the subsequent assignee receives payment of the assigned account.' Assuming for present purposes, that the trustee in bankruptcy stands in the position of a subsequent assignee clothed with the qualities of a bona fide or 'good-faith purchaser.' In this jurisdiction, where an assignment is valid without notice, he would take nothing by such legally imposed assignment. Nor can it be said on the face of this record that the trustee has received payment, constructively or otherwise. Such a construction would fly in the face of a truth. No such payment was made. Hence nothing is left open to 'possible intervening rights' under this heading.
(2) It is ruled that if the trustee stands as a subsequent assignee and 'obtains a judgment against the obligor' the date of the prior assignments may be theoretically advanced as above. For present purposes it is my view that the trustee does stand in the position of a judgment creditor protected by an attachment, an injunction, and a caveat to the world. International Bank v. Sherman, 101 U.S. 403, 25 L. Ed. 866; Mueller v. Nugent, 184 U.S. 1, 22 S. Ct. 269, 46 L. Ed. 405; and, if it be that the obligor, above referred to, is the debtor in the assigned accounts it would follow that the trustee here, being fortified by a redated assignment could set it at naught. However, when the trustee stands in the shoes of a judgment creditor, who is the judgment debtor? It must be the bankrupt since the judgment in attachment runs only against the bankrupt's property tangible and intangible. The effect of this judgment runs from the date of the filing of the petition. At that instant the prior assignments were valid as against the bankrupt and all others and they could not be attacked or attached by anyone. It follows that these assignments cannot be subsequently attacked by the trustee since, when his rights took effect no 'possible intervening rights' were outstanding. I know of no New Jersey case or statutory law to the contrary of this view and as I read the pertinent provisions of Section 173 of the Restatement of the Law of Contracts, it does not sound to the contrary (see illustration three thereof). Strictly speaking we are dealing here with the subject of assignments wherein the relation of assignor and assignee are concerned: not with bonds where obligor and obligee are to be considered.
(3) It is further found that the trustee, standing in the shoes of a subsequent assignee, 'obtains a new contract with the obligor by means of a novation.' There can be no novation here in the absence of an agreement between the prior assignee (Standard Factors) and debtor under an assigned account or by the debtor with some third party. No such novation appears nor can it be said that the way was open to such substitution of a new agreement or obligation for an old one. This is because the prior assignment remained a closed transaction down to and including the date of bankruptcy. In short, the transaction was not 'left open to possible intervening rights.' It may be well to state at this point that I do not construe the language above quoted from the Corn Exchange Bank, supra, to imply that the lower courts may imagine conditions which have no foundation in fact. To do so would be to make the subject ridiculous. This court cannot imagine, for example, the absence of a validly consummated assignment to Standard Factors when on actually exists, nor can it imagine impossible or unlawful conduct on the part of the parties thereto for the purpose of invalidating it. There must be valid evidence on which to make such findings.
(4) Again, it is thought that the trustee standing in the shoes of an assignee 'receives the delivery of a tangible token or writing, surrender of which is required by the obligor's contract for its enforcement' and by virtue thereof the prior assignments are postponed and invalid. If the debtor of the assigned account is to be considered as the obligor and the trustee has such 'token or writing' ex officio. What is the writing and what are its terms? The writing is the decree in bankruptcy and the effect thereof is found in the trustee's title. As is seen in (2) and (3) hereof the trustee's title rises no higher in this non-notification jurisdiction than that of any other good-faith assignee and it cannot set the prior good-faith assignments held by Standard Factors at naught. It follows here again that nothing 'is left open to possible intervening rights.'
Reliance on the thought that New Jersey would follow section 173 of the Restatement of the Law of Contracts is by no means a safe approach. In fact the Restatement admits that New Jersey is out of line with it. The pocket supplement for the New Jersey annotations on the subject says: 'In Emley v. Perrine, 58 N.J.L. 472, 33 A. 951 (Sup Ct 1896) a subsequent assignee who obtained delivery of a tangible chose in action was held without rights in direct contradiction to subclause (IV). In Executors of Luse v. Park, 17 N.J.Eq 415 (Pr. 1864) there was dictum to the effect that the prior assignee prevails even though the second is paid.' This it would seem is the present state of the law in this jurisdiction.
There remains one further proposition to be considered, not dealt with by the Referee or in the briefs. N.J.S.A. 2:41-1 authorizes assignments of choses in action and provides that the assignee may sue thereon in his own name ' * * * but, in such action, there shall be allowed all set-offs, discounts and defenses, not only against the plaintiff, but also against the assignor before notice of such assignment shall be given to the defendant. * * *' This act authorizes assignments at law as well as in equity and it furnishes specific protection to the debtor defendant only. It can have no application here to vitiate the assignments to Standard Factors because when considered from all possible or reasonably imagined approaches it will be found not to weaken in anyway the position of the first assignee who is a holder in good faith.
While it is true that in the Corn Exchange Bank case, emphasis is placed on the intent of Congress to discourage secret transfers, it does not appear that the effect of such emphasis is intended to go so far as to strike down the law protecting prior assignees in non-notification jurisdictions. The opinion clearly indicates that the 'standards' to be applied must be found in the 'applicable state law.'
For the foregoing reasons the order of the Referee dated February 23, 1945 will be set aside. Let an order be entered to that effect.