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Taylor v. New Line Industries Inc.

Decided: October 25, 1955.

RICHARD TAYLOR, IRVING STERN, SCOTT ADAMS, ROBERT E. KENIM, JOHN B. SLACK, FRANK H. WHEATON, JR., AND ALEX MORVAY, PLAINTIFFS,
v.
NEW LINE INDUSTRIES, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT



Haneman, J.s.c.

Haneman

[37 NJSuper Page 502] This matter is before the court on the return of two orders to show cause, obtained by the Millville National Bank, and Wheaton Die Casting Corporation, in which Maurice Risley, receiver for New Line Industries,

Inc., is directed to show cause why he should not turn over to the Millville National Bank and Wheaton Die Casting Corporation all payments he has received or may receive on accounts receivable theretofore assigned to them by New Lines Industries, Inc. as collateral security for loans or the payment of sums due for the sale of merchandise. Incidentally, he is also required to show cause why he should not turn over to them all records of New Line Industries, Inc. pertaining to said assigned accounts, and notify account debtors that payments thereof should be made directly to them. The Millville National Bank also seeks to hold the receiver liable in connection with an assignment of an alleged receivable account due from Consolidated Bottle Company. A succinct statement of the three questions here involved is as follows:

1. Does an assignment of accounts receivable as collateral security, where no security interest in merchandise is taken, have to be recorded under the Factor's Lien Law in order for the assignment to be valid?

2. Is an assignment of an account receivable effective if the books of the assignor are not marked to indicate the assignment?

3. If the receiver of an assignor of an account receivable accepts the return of merchandise from an account debtor, in lieu of the moneys owed on the account, is the assignee of the account, who did not authorize this action, entitled to hold the receiver liable for the loss sustained?

The solution of the primary problem in this matter turns upon the question of whether the provisions of the Factor's Lien Law, N.J.S. 2 A:44-178 et seq. require a recordation of an assignment of accounts receivable where there was never created nor did there ever exist a lien upon the goods, the sales of which gave rise to the accounts receivable.

Generally, under our common law, the delivery of an assignment of accounts receivable, without anything more, gave the assignee a valid title, at least as between the assignor and assignee. Cogan v. Conover Manufacturing Co. , 69 N.J. Eq. 809 (E. & A. 1906); Moorestown Trust Co.

v. Buzby , 109 N.J. Eq. 409 (Ch. 1931); Schwartz v. Maguire , 130 N.J. Eq. 152 (Ch. 1941), modified on unrelated ground, 131 N.J. Eq. 578 (E. & A. 1942); Texas Co. v. United Paving Co. , 81 N.J. Eq. 434 (Ch. 1913); Hirsch v. Phily , 4 N.J. 408 (1950).

The statute here involved is in derogation of the common law insofar as it concerns assignment of accounts receivable, and hence must be strictly construed. Carlo v. Okonite-Callender Cable Co. , 3 N.J. 253 (1949); State v. Court of Common Pleas of Mercer County , 1 N.J. 14 (1948); United States Casualty Co. v. Hyrne , 117 N.J.L. 547 (E. & A. 1937).

The Factor's Lien Law, when adopted, provided a new type of security for the lender. It created a lien upon certain goods of the borrower and upon the sale of those goods said lien was automatically transferred to the accounts receivable resulting from the sale.

The cited statute does not basically concern itself with an assignment of accounts receivable unaccompanied by a lien on the goods, the sale ...


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