The opinion of the court was delivered by: FAKE
The issues here arise on a petition to review an order of the Referee dated February 23, 1945, wherein it is decreed that Simon F. Fisch as trustee in bankruptcy has title to all the accounts receivable of the bankrupts and the proceeds thereof free of any right or title in Standard Factors Corporation, a prior assignee of said accounts.
It appears from the Referee's findings of fact that bankrupts were engaged in the wholesale produce business at Newark, New Jersey; that they entered into an agreement with Standard Factors Corporation dated April 21, 1942 whereby Standard agreed to purchase, from time to time, accounts receivable due and owing to bankrupts. Pursuant to this contract, bankrupts executed and delivered to Standard some 45 written assignments transferring to Standard certain groups of accounts. These transactions were consummated between April 22, 1942 and November 16, 1942 inclusive. The agreement provided among other things that Standard was to take these assigned accounts as collateral security and would advance 75% of the face of such accounts to the bankrupts. Such percentage was so advanced by Standard in each instance in the regular course of business and without notice of insolvency, actual or constructive, save only as to the accounts assigned under date of November 16, 1942. At that time the assignee had actual notice of insolvency, and has waived its claim to said accounts.
I find that I am unable to agree with the result arrived at by the learned Referee. He labored, and this court is here laboring, in a sphere in which it cannot be said that the law is altogether crystal clear. The Referee has stated his position in a carefully prepared memorandum, as yet unpublished, and the better to understand the problems involved, so much thereof as is pertinent will be quoted. He says:
'The contracts between these parties were made in New Jersey and were to be performed in New Jersey. It is the law of the place of performance of the assigned contract or account that determines which of successive assignees is entitled to the account. (Reinstatement of Conflict of Laws, Sections 353, 354, 366). The rights of the Trustee in Bankruptcy as against Standard Factors Corporation are to be determined by the laws of New Jersey and Section 60, sub. a of the Bankruptcy Act (11 U.S.C.A. 96, sub. a).
'Under Section 60, sub. a of the Bankruptcy Act ' * * * a transfer shall be deemed to have been made at the time when it became so far perfected that no bona fide purchaser from the debtor and no creditor could thereafter have acquired any rights in the property so transferred superior to the rights of the transferee therein, and, if such transfer is not so perfected prior to the filing of the petition in bankruptcy * * * it shall be deemed to have been made immediately before bankruptcy.'
'In Corn Exchange Bank v. Klauder, 318 U.S. 434, 63 S. Ct. 679, 87 L. Ed. 884, 144 A.L.R. 1189, it was held under Section 60, sub. a that assignments of accounts were preferences where the assignees gave no notice of the assignments to the debtors whose accounts were assigned and where under the law of the state in which the transactions took place a subsequent goodfaith assignee, giving such notice, would acquire rights superior to the assignees.
'There are two cases in New Jersy dealing with the question of whether notice is necessary to make the transfer of a chose in action complete. In the case of Jenkinson v. New York Finance Co., 79 N.J.Eq. 247, 82 A. 36, it was held that the second assignee of a legacy prevailed over the first assignee since the second assignee first gave notice of his assignment to the executor. In the case of Moorestown Trust Co. v. Buzby, 109 J.J.Eq. 409, 157 A. 663, it was held that the first of two assignees would prevail irrespective of the giving of notice. Jenkinson v. New York Finance Company follows what has been called the English rule and Moorestown Trust Co. v. Buzby follows what has been called the Massachusetts rule.
'There was recently pending in the Court of Chancery of New Jersey a case involving the validity of assignments of accounts under Section 60, sub. a of the Bankruptcy Act and it seemed quite probable that there would be a determination of the effect of Section 60, sub. a in New Jersey in view of the apparent difference of rule in the cases of Jenkinson v. New York Finance Co. and Moorestown Trust Company v. Buzby. This case, however, has been decided on other grounds and without considering the cases of Jenkinson v. New York Finance Company and Moorestown Trust Company v. Buzby.
'In the case of In re Vardaman Shoe Co., D.C. Mo., 52 F.Supp. 562 the court dealt with assignments that were held by banks located in the state of Illinois, made by a corporation which was a resident in and doing business in the state of Missouri. There had been no notice of the assignments given to the debtors. Missouri followed the English rule, but Illinois followed the Massachusetts rule. The court held that under either rule the assignment constituted preferences under Section 60, sub. a of the Bankruptcy Act. If notice were necessary to make the assignment valid against a bona fide purchaser and notice had not been given, the assignments were void as against the trustee. Corn Exchange Bank v. Klauder, supra. But the court went further and held that even in states which adopt the Massachusetts rule that a subsequent assignee cannot defeat 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 ...