(3) A 'lien creditor' means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes an assignee for the benefit of creditors from the time of assignment, and a trustee in bankruptcy from the date of the filing of the petition or a receiver in equity from the time of appointment. Unless all the creditors represented had knowledge of the security interests such a representative of creditors is a lien creditor without knowledge even though he personally has knowledge of the security interest. (emphasis added).
In construing the above provisions with those of Section 70(c) of the Bankruptcy Act, 11 U.S.C.A. Section 110(c), it is urged by petitioner that the Receiver only stands in the shoes of an actual creditor who extended credit during the period of time a security interest was unperfected, not a hypothetical or ideal creditor. However, under Section 70(c), the Receiver, as of the date of bankruptcy, shall have the rights and powers of:
'(3) A creditor who upon the date of bankruptcy obtained a lien by legal or equitable proceedings upon all property, whether or not coming into possession or control of the court, upon which a creditor of the bankrupt upon a simple contract could have obtained such a lien, whether or not such a creditor exists. (emphasis added).
Therefore, the Receiver takes on the status of an 'ideal' or 'perfect creditor' regardless of whether there were any creditors who had or did not have knowledge of the unperfected security interest. 'That section (70(c)) confers on the trustee in bankruptcy the status of an ideal hypothetical creditor and as such gives him the status of a creditor without notice, despite any actual knowledge he may personally have had at the time of bankruptcy and regardless of the fact that there may not exist any actual creditor without notice.' In Matter of Babcock Box Co., 200 F. Supp. 80 (D.Mass.1961). See also Taplinger v. Northwestern National Bank, 101 F.2d 274 (3d Cir. 1938); In re Lindsey, 131 F. Supp. 11 (D.N.J.1955).
Accordingly, the receiver is accorded 'ideal' status as the perfect creditor who has complied with all requirements necessary under the applicable law for a lien by legal or equitable process. He has such status irrespective of whether there are actually any such creditors in existence as his status is derived not by the nature of the creditors of the estate, but by the Bankruptcy Act itself. 4A Collier on Bankruptcy, Section 70.53 at p. 636 (14th ed.).
Thus, the assertion by petitioner that in order for the receiver to maintain an action under Section 70(c), he must demonstrate that actual creditors exist who did not have knowledge of the Bank's unperfected security interest is erroneous. Reliance on Pacific Finance Corporation v. Edwards, 304 F.2d 224 (9th Cir. 1962) is misplaced, as although it does support this contention, the holding is clearly contrary to the overwhelming weight of authority and has been severely criticized. See 4A Collier, Section 70.50, pp. 611-614.
Proof that all creditors did have knowledge of the unperfected security interest, which the Bank has not even attempted to establish, would nevertheless not suffice to impute this knowledge to the receiver and effect his rights under the strong-arm clause of Section 70(c). Therefore, 'there is no necessity for demonstrating that he does or does not represent at least one actual creditor without notice.' 4A Collier, Section 70.53, p. 636-7.
In conclusion, it is apparent that a state statute, such as N.J.S.A. 12A:9-301(1), cannot serve to deprive the receiver of his federally created status as a lien creditor without notice. As previously stated, the actual knowledge of all the creditors has no bearing on the rights of the receiver under Section 70(c). Therefore, the Uniform Commercial Code cannot be deemed to affect this position. Accordingly, the Bank's unperfected security interest does not have priority over the rights of the receiver in bankruptcy.
Thus, the petition of the Princeton Bank and Trust Company is denied.
Submit an order.
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