Opinion — Benedict v. Ratner

WALLACE BENEDICT, RECEIVER, v. RATNER.

} CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE

SECOND CIRCUIT.

No. 11. Argued October 5, 1923.—Decided May 25, 1925.

1. By the law of New York a transfer of property, as security for

a debt, which reserves to the transferor the right to dispose of the

property or to apply its proceeds for his own uses, is fraudulent

and void as to creditors. P. 360.

. This rule applies to the assignment of present and future book

accounts as well as to assignment of chattels, since it does not

result from the retention of ostensible ownership by the assignor,

but from the fact that the reservation of dominion by him is

inconsistent with the effective disposition of title and creation of a

lien. P. 361. i

. Held that an assignment made by a mercantile corporation, more

than four months before it was adjudged bankrupt, of its present

and future accounts receivable as security for a loan, was void

under the above rule, so that delivery of a list of accounts, and pay-

ments made within the four months, were inoperative to perfect a

55627°—25——23

354 OCTOBER TERM, 1924.

Argument for Petitioner. 268 U.S.

lien in the assignee, but were unlawful preferences, under the Bank-

ruptcy Act. P. 364.

282 Fed. 12, reversed.

CrrTrorari to a judgment of the Circuit Court of Ap-

peals which affirmed an order of the District Court requir-

ing a receiver and trustee in bankruptcy to pay over

money collected from accounts receivable to a creditor

of the bankrupt claiming them as security under an as-

signment, and denying the trustee’s petition that the cred-

itor be required to pay over collections made by him under

the assignment.

Mr. Selden Bacon, for petitioner.

A contemporaneous agreement that, despite an assign-

ment of property as collateral security to secure the as-

signee for a debt due him from the assignor, the assignor

may continue to use and dispose of the property as his

own, retaining and using the proceeds in his business,

without accounting therefor in any way to his assignee,

renders the assignment fraudulent and void as against

creditors, not only in the case of ordinary chattel mort-

gages but also in the case of assignments confined to ac-

counts receivable. Jn re Leslie-Judge Co., 272 Fed. 886;

Russell v. Winne, 37 N. Y. 591; Skilton v. Codington,

185 N. Y. 80; Griswold v. Sheldon, 4 N. Y. 581; Southard

v Benner, 72 N. Y. 424; Zartman v. First Natl. Bank,

189 N. Y. 267; In re Volence, 197 Fed. 232; Robinson v.

Elliot, 22 Wall, 513.

Cases implying that the rule is not based on any ap-

pearance growing out of possession but on the fraudulent

character of the arrangement, we find in abundance.

See cases above cited, and Wood v. Lowry, 17 Wend.

492: Edgell v. Hart, 9 N. Y. 213; Vilas Bank v. Newton,

25 App. Div. N. Y., 62, 66; Mittnach v. Kelly, 3 Abb. Ct.

App. Dee. 301; Gardner v. McEwen, 19 N. Y. 123; In re

Marine Construction Co., 144 Fed. 649; Worrall v. Smith,

1 Camp. 322; Paget v. Perchard, 1 Esp. 205.

BENEDICT v. RATNER. 355

353 Argument for Respondent.

The decisions in Sexton v. Kessler, 225 U. S. 90, and in

Chapman v. Hunt, 254 Fed. 768, in no way conflict with

the rule we invoke.

Even were the rule predicated on a false appearance

of ownership, the facts here supply the equivalent, and

more than the equivalent, of any false appearance of

ownership arising from possession of tangibles. There

was the actual appearance of ownership deliberately pre-

served and sustained, and deliberate concealment of the

assignment to avoid the obvious and contemplated conse-

quences of disclosure of the fact of the assignment of all

receivables present and future.

If the assignment was galvanized into actuality by

Ratner’s taking over the checks as they came in, during

the last week before the bankruptcy, that galvanization

process went no further than his actual receipts of about

$12,000, and the decree for further payment to him of

some $18,000 is erroneous. Moreover as to the $12,000

the transaction was preferential. The main question pre-

sented is of the utmost importance to the business com-

munity and to the administration of the Bankruptcy Act.

Mr. Louis S. Posner, for respondent.

An assignment of property to be acquired thereafter

operates by way of present contract to give a lien which,

as between the parties, takes effect and attaches to the

subject of it as soon as it comes into the ownership of the

assignor. Such lien becomes perfected and ripens into

a right at law which is enforcible against third parties if,

after the property is acquired, the assignee take possession

thereof prior to an execution or attachment levy thereon,

or the like, by third parties, or the appointment of a re-

ceiver upon the filing of a petition in bankruptcy by or

against the assignor. McCaffrey v. Woodin, 65 N. Y.

463; Thompson v. Fairbanks, 196 U. 8. 516.

The facts here constitute the equivalent, and more than

the equivalent, of taking possession of the accounts re-

356 OCTOBER TERM, 1924.

Argument for Respondent. 268 U.S.

ceivable to the full extent that the nature of these choses

in action permitted. And since this was done before

any third parties had “ fastened” a lien, it is enforcible

against third parties, including the receiver in bankruptcy

and his successor trustee. Bailey v. Baker Ice Machine

Co., 239 U. S. 275-276; Thompson v. Fairbanks, supra;

McCaffrey v. Woodin, supra; Serton v. Kessler, 225

U.S. 90.

The agreement in question was not recorded because

the recording acts of New York permit this to be done

only with reference to “ goods and chattels,” and exclude

choses in action from their operation. Niles v. Methusa,

162 N. Y. 546. The four-month rule does not apply to

the situation, since the intervening acts by which posses-

sion was taken of the after-acquired accounts relate back

to the date of the original agreement, which took place

more than four months previously. Bracket v. Harvey,

91 N. Y. 214; Thompson v. Fairbanks, supra; Sexton v.

Kessler, supra. Such cases as have been found which

deal with the assignment of intangibles or choses in

action, present or future, such as accounts, bonds, and

the like, sustain the position of the appellee and entitle

him to the proceeds of the balance of the accounts, at

least of those accounts which were included in the list

last delivered to him, until his loans are repaid in full

with interest. Stackhouse v. Holden, 66 A. D. (N. Y.)

423; Sexton v. Kessler, supra; Greey v. Dockendorff, 231

U. S. 516; In re Michigan Furniture Company, 249 Fed.

974; Union Trust v. Bulkeley, 150 Fed. 510; In re Mc-

Cauley, 158 Fed. 332. No question of good faith exists

in the case based upon the secrecy of the transaction,

which we maintain to be a condition inherent in it and

which the courts so recognize. Greey v. Dockendorff,

supra; Stackhouse v. Holden, supra.

It is the law in New York that a mortgage of goods

and chattels wherein the mortgagor reserves the right of

a ee ERT RD

BENEDICT v. RATNER.

353 Opinion of the Court,

disposal, for his own benefit, is deemed fraudulent in law

and void. The rule rests in the original conception that

the visible possession of personal property indicated own-

ership,—a condition which cannot in its nature apply to

such intangible property as choses in action, and which

has never been held so to apply in any decisions which

we have been able to find or which the appellant cites.

The doctrine in question, based upon the conceptions of

reputed ownership in the days when rights of property

had their beginnings, must be deemed to be greatly out of

joint with modern conceptions of industry and modes of

possession ; in any event, the doctrine, if it cannot be dis-

regarded, should at least be limited and held within its

present confines rather than extended into a field where

it never before has played a part and where it can but

serve as an embarrassment to business. Such considera-

_ tions of public interest as here exist point clearly that

way, particularly since those who enter into business rela-

tions know full well that the utilization of accounts re-

ceivable, in order to keep business liquid, is one of the

commonest practices of everyday business.

Mr. Justice Branveis delivered the opinion of the

Court.

The Hub Carpet Company was adjudicated bankrupt

by the federal court for southern New York in involun-

tary proceedings commenced September 26, 1921. Bene-

dict, who was appointed receiver and later trustee, col-

lected the book accounts of the company. Ratner filed in

that court a petition in equity praying that the amounts

so collected be paid over tohim. He claimed them under

a writing given May 23, 1921—four months and three

days before the commencement of the bankruptcy pro-

ceedings. By it the company purported to assign to him,

as collateral for certain loans, all accounts present and

future. Those collected by the receiver were, so far as

356 OCTOBER TERM, 1924.

Argument for Respondent. 268 U.S.

ceivable to the full extent that the nature of these choses

in action permitted. And since this was done before

any third parties had “ fastened” a lien, it is enforcible

against third parties, including the receiver in bankruptcy

and his successor trustee. Bailey v. Baker Ice Machine

Co., 239 U. S. 275-276; Thompson v. Fairbanks, supra;

McCaffrey v. Woodin, supra; Sexton v. Kessler, 225

U.S. 90.

The agreement in question was not recorded because

the recording acts of New York permit this to be done

only with reference to “ goods and chattels,” and exclude

choses in action from their operation. Niles v. Methusa,

162 N. Y. 546. The four-month rule does not apply to

the situation, since the intervening acts by which posses-

sion was taken of the after-acquired accounts relate back

to the date of the original agreement, which took place

more than four months previously. Bracket v. Harvey,

91 N. Y. 214; Thompson v. Fairbanks, supra; Sexton v.

Kessler, supra. Such cases as have been found which

deal with the assignment of intangibles or choses in

action, present or future, such as accounts, bonds, and

the like, sustain the position of the appellee and entitle

him to the proceeds of the balance of the accounts, at

least of those accounts which were included in the list

last delivered to him, until his loans are repaid: in full

with interest. Stackhouse v. Holden, 66 A. D. (N. Y.)

423; Sexton v. Kessler, supra; Greey v. Dockendorff, 231

U. S. 516; In re Michigan Furniture Company, 249 Fed.

974; Union Trust v. Bulkeley, 150 Fed. 510; In re Mc-

Cauley, 158 Fed. 332. No question of good faith exists

in the case based upon the secrecy of the transaction,

which we maintain to be a condition inherent in it and

which the courts so recognize. Greey v. Dockendorff,

supra; Stackhouse v. Holden, supra.

It is the law in New York that a mortgage of goods

and chattels wherein the mortgagor reserves the right of

BENEDICT v. RATNER.

353 Opinion of the Court.

disposal, for his own benefit, is deemed fraudulent in law

and void. The rule rests in the original conception that

the visible possession of personal property indicated own-

ership,—a condition which cannot in its nature apply to

such intangible property as choses in action, and which

has never been held so to apply in any decisions which

we have been able to find or which the appellant cites.

The doctrine in question, based upon the conceptions of

reputed ownership in the days when rights of property

had their beginnings, must be deemed to be greatly out of

joint with modern conceptions of industry and modes of

possession ; in any event, the doctrine, if it cannot be dis-

regarded, should at least be limited and held within its

present confines rather than extended into a field where

it never before has played a part and where it can but

serve as an embarrassment to business. Such considera-

_ tions of public interest as here exist point clearly that

way, particularly since those who enter into business rela-

tions know full well that the utilization of accounts re-

ceivable, in order to keep business liquid, is one of the

commonest practices of everyday business.

Mr. Justice Branpets delivered the opinion of the

Court.

The Hub Carpet Company was adjudicated bankrupt

by the federal court for southern New York in involun-

tary proceedings commenced September 26, 1921. Bene-

dict, who was appointed receiver and later trustee, col-

lected the book accounts of the company. Ratner filed in

that court a petition in equity praying that the amounts

so collected be paid over tohim. He claimed them under

a writing given May 23, 1921—four months and three

days before the commencement of the bankruptcy pro-

ceedings. By it the company purported to assign to him,

as collateral for certain loans, all accounts present and

future. Those collected by the receiver were, so far as

358 OCTOBER TERM, 1924.

Opinion of the Court, 268 U.S.

appears, all accounts which had arisen after the date of

the assignment, and were enumerated in the monthly list

of accounts outstanding which was delivered to Ratner

September 23. Benedict resisted the petition on the

ground that the original assignment was void under the

law of New York as a fraudulent conveyance; that, for

this reason, the delivery of the September list of accounts

was inoperative to perfect a lien in Ratner; and that it

was a preference under the Bankruptcy Act. He also

filed a cross-petition in which he asked that Ratner be

ordered to pay to the estate the proceeds of certain collec-

tions which had been made by the company after Sep-

tember 17 and turned over to Ratner pursuant to his re-

quest made on that day. The company was then insol-

vent and Ratner had reason to believe it to be so. These

accounts also had apparently been acquired by the com-

pany after the date of the original assignment.

The District Judge decided both petitions in Ratner’s ©

favor. He ruled that the assignment executed in May

was not fraudulent in law; that it created an equity in

the future acquired accounts; that because of this equity,

Ratner was entitled to retain, as against the bankrupt’s

estate, the proceeds of the accounts which had been col-

lected by the company in September and turned over to

him; that by delivery of the list of the accounts outstand-

ing on September 23, this equity in them had ripened into

a perfect title to the remaining accounts; and that the

title so perfected was good as against the supervening

bankruptcy. Accordingly, the District Court ordered

that, to the extent of the balance remaining unpaid on

his loans, there be paid Ratner all collections made from

accounts enumerated in any of the lists delivered to Rat-

ner; and that the cross-petition of Benedict be denied.

There was no finding of fraud in fact. On appeal, the

Circuit Court of Appeals affirmed the order. 282 Fed.

12. A writ of certiorari was granted by this Court. 259

U. S. 579.

BENEDICT v. RATNER. 359

353 Opinion of the Court.

The rights of the parties depend primarily upon the

; law of New-York. Hiscock v. Varick Bank of N. Y., 206

U. 8. 28. It may be assumed that, unless the arrange-

ment of May 23 was void because fraudulent in law, the

original assignment of the future acquired accounts be-

came operative under the state law, both as to those paid

over to Ratner before the bankruptcy proceedings and as

to those collected by the receiver;' and that the assign-

ment will be deemed to have taken effect as of May 23.

Sexton v. Kessler, 225 U. S. 90, 99. That being so, it is

clear that, if the original assignment was a valid one

under the law of New York, the Bankruptcy Act did not

invalidate the subsequent dealings of the parties. Thomp-

| son v. Fairbanks, 196 U. S. 516; Humphrey v. Tatman,

| 198 U.S. 91. The sole question for decision is, therefore,

| whether on the following undisputed facts the assign-

ment of May 23 was in law fraudulent.

The Hub Carpet Company was, on May 23, a mercan-

tile concern doing business in New York City and propos-

ing to continue to do so. The assignment was made there

to secure an existing loan of $15,000, and further advances

not exceeding $15,000 which were in fact made July 1,

1921. It included all accounts receivable then outstand-

ing and all which should thereafter accrue in the ordinary

course of business. A list of the existing accounts was

delivered at the time. Similar lists were to be delivered

| to Ratner on or about the 23d day of each succeeding

month containing the accounts outstanding at such future

dates. Those enumerated in each of the lists delivered

prior to September, aggregated between $100,000 and

$120,000. The receivables were to be collected by the

company. Ratner was given the right, at any time, to

1 Williams v. Ingersoll, 89 N. Y. 508, 518-520; Coats v. Donnell, 94

N. Y. 168, 177. See Rochester Distilling Co. v. Rasey, 142 N. Y. 570,

580; MacDowell v. Buffalo Loan, etc. Co., 193 N. Y. 92, 104. Com-

pare New York Security & Trust Co. v. Saratoga Gas, etc. Co.,

159 N. Y. 137; Zartman v. First National Bank, 189 N. Y. 267.

360 OCTOBER TERM, 1924.

Opinion of the Court. 268 U.S.

demand a full disclosure of the business and financial

conditions; to require that all amounts collected be ap-

plied in payment of his loans; and to enforce the assign-

ment although no loan had matured. But until he did

so, the company was not required to apply any of the

collections to the repayment of Ratner’s loan. It was

not required te replace accounts collected by other col-

lateral of equal value. It was not required to account in

any way to Ratner. It was at liberty to use the proceeds

of all accounts collected as it might see fit. The exist-

ence of the assignment was to be kept secret. The busi-

ness was to be conducted as theretofore. Indebtedness .

was to be incurred, as usual, for the purchase of merchan-

dise and otherwise in the ordinary course of business. The

amount of such indebtedness unpaid at the time of the

commencement of the bankruptcy proceedings was large.

Prior to September 17, the company collected from

accounts so assigned about $150,000, all of which it applied

to purposes other than the payment of Ratner’s loan.

The outstanding accounts enumerated in the list deliv-

ered September 23 aggregated $90,000.

Under the law of New York a transfer of property as

security which reserves to the transferor the right to dis-

pose of the same, or to apply the proceeds thereof, for his

own uses is, as to creditors, fraudulent in law and void.’

2 Griswold v. Sheldon, 4 N. Y. 580; Edgell v. Hart, 9 N. Y. 213;

Russel! v. Winne, 37 N. Y. 591; Southard v. Benner, 72 N. Y. 424;

Potts v. Hart, 99 N. Y. 168; Hangen v. Hachemeister, 114 N. Y.

566; Mandeville v. Avery, 124 N. Y. 376; Skiton v. Codington, 185

N. Y. 80; Zartman v. First National Bank, 189 N. Y. 267; In re

Marine Construction & Dry Docks Co., 135 Fed. 921, 144 Fed. 649;

In re Davis, 155 Fed. 671; In re Hartman, 185 Fed. 196; In re

Volence, 197 Fed. 232; In re Purtell, 215 Fed. 191; In re Leslie-Judge

Co., 272 Fed. 886. Compare Frost v. Warren, 42 N. Y. 204; also

Lukins v. Aird, 6 Wall. 78; Robinson v. Elliot, 22 Wall. 513; Smith

v. Craft, 123 U. 8. 436; Means v. Dowd, 128 U. S. 273; Etheridge v.

Sperry, 139 U. S. 266; Huntley v. Kingman, 152 U. S. 527; Knapp v.

Milwaukee Trust Co., 216 U. 8. 545.

BENEDICT v. RATNER. 361

353 Opinion of the Court.

This is true whether the right of disposition for the trans-

feror’s use be reserved in the instrument * or by agree-

ment in pais, oral or written ;* whether the right of dispo-

sition reserved be unlimited in time* or be expressly

terminable by the happening of an event;° whether the

transfer cover all the property of the debtor’ or only a

part ;* whether the right of disposition extends to all the

property transferred’ or only to a part thereof ;*® and

whether the instrument of transfer be recorded or not."'

If this rule applies to the assignment of book accounts,

the arrangement of May 23 was clearly void; and the

equity in the future acquired accounts, which it would

otherwise have created,’® did not arise. Whether the rule

applies to accounts does not appear to have been passed

upon by the Court of Appeals of New York. But it would

seem clear that whether the collateral consist of chattels

3 Edgell v. Hart, 9 N. Y. 213, 216; Zartman v. First National Bank,

189 N. Y. 267, 270.

4 Russell v. Wynne, 37 N. Y. 591, 595; Southard v. Benner, 72 N. Y.

424, 432; Potts v. Hart, 99 N. Y. 168, 172-173.

5 Southard v. Benner, 72 N. Y. 424, 430; Potts v. Hart, 99 N. Y.

168, 172.

6 Zartman v. First National Bank, 189 N. Y. 267, 270.

7 Zartman v. First National Bank, 189 N. Y. 267, 269.

8 Russell v. Winne, 37 N. Y. 591; Southard v. Benner, 72 N. Y. 424.

9 Potts v. Hart, 99 N. Y. 168, 172.

10 Russell v. Winne, 37 N. Y. 591, 593; In re Leslie-Judge Co., 272

Fed. 886, 888.

11 Potts v. Hart, 99 N. Y. 168, 171. N. Y. Personal Property Law,

§ 45; Laws, 1911, c. 626, authorizes the creation of a general lien or

floating charge upon a stock of merchandise, including after-acquired

chattels, and upon arcounts receivable resulting from the sale of

such merchandise. It provides that this lien or charge shall be valid

against creditors provided certain formalities are observed and de-

tailed filing provisions are complied with. It is possible that, if its

conditions are performed, the section does away with the rule “ that

yetention cf possession by the mortgagor with power of sale for his

own benefit is fraudulent as to creditors.”

12 Field vy. Mayor, etc. of New York, 6 N. Y. 179.

362 OCTOBER TERM, 1924.

Opinion of the Court. 268 U.S.

or of accounts, reservation of dominion inconsistent with

the effective disposition of title must render the transac-

tion void. Ratner asserts that the rule stated above rests

upon ostensible ownership, and argues that the doctrine

of ostensible ownership is not applicable to book accounts.

That doctrine raises a presumption of fraud where chat-

tels are mortgaged (or sold) and possession of the property

is not delivered to the mortgagee (or vendee)."* The pre-

sumption may be avoided by recording the mortgage (or

sale). It may be assumed, as Ratner contends, that the

doctrine does not apply to the assignment of accounts. In

their transfer there is nothing which corresponds to the

delivery of possession of chattels. The statutes which

embody the doctrine and provide for recording as a sub-

stitute for delivery do not include accounts. A title to an

account good against creditors may be transferred without

notice to the debtor ™ or record of any kind.’® But it is

'2 Smith v. Acker, 23 Wend. 653; Griswold v. Sheldon, 4 N. a

580, 590; Edgell v. Hart, 9 N. Y. 218, 218; Conkling v. Shelley, 28

N. Y. 360. The statutes to this effect merely embody the common-

law rule. But, in New York, an additional statute provides that

unrecorded chattel mortgages under such circumstances are absolutely

void as to creditors, New York Lien Law, § 230; Laws, 1909, c. 38,

§ 230, as amended 1911, ¢. 326, and 1916, c. 348. See Seidenbach

v. Riley, 111 N. Y. 560; Karst v. Kane, 136 N. Y. 316; Stephens v.

Perrine, 143 N. Y. 476; Russell v. St. Mart, 180 N. Y. 355. See

Stewart v. Platt, 101 U. 8. 731, 735. Compare Preston v. Southwick,

115 N. Y. 139; Nash v. Ely, 19 Wend. (N. Y.) 523; Goodwin v.

Kelly, 42 Barb. (N. Y.) 194. In the case of a transfer of personal

property by sale, retention of possession creates a rebuttable presump-

tion of fraud. See Kimball v. Cash, 176 N. Y. Supp. 541; also New

York Ice Co. v. Cousins, 23 App. Div. 560; Rheinfeldt v. Dahlman,

43 N. Y. Supp. 281; Tuttle v. Hayes, 107 N. Y. Supp. 22; Young v.

Wedderspoon, 126 N. Y. Supp. 375; Sherry v. Janov, 137 N. Y.

Supp. 792; Gisnet v. Moeckel, 165 N. Y. Supp. 82. In order to create

a valid pledge of tangible personalty, there must be a delivery to

the pledgee. In re P. J. Sullivan Co., 247 Fed. 139, 254 Fed. 660.

4 Williams vy. Ingersoll, 89 N. Y. 508, 522.

18 Niles v. Mathusa, 162 N. Y. 546; National Hudson River Bank v.

Chaskin, 28 App. Div. 311, 315; Curtis v. Leavitt, 17 Barb. (N. Y.)

BENEDICT v. RATNER. 363

353 Opinion of the Court.

not true that the rule stated above and invoked by the

receiver is either based upon or delimited by the doctrine

of ostensible ownership. It rests not upon seeming own-

ership because of possession retained, but upon a lack of

ownership because of dominion reserved. It does not

raise a presumption of fraud. It imputes fraud conclu-

sively because of the reservation of dominion inconsistent

with the effective disposition of title and creation of a

lien.

The nature of the rule is made clear by its limitations.

Where the mortgagor of chattels agrees to apply the pro-

ceeds of their sale to the payment of the mortgage debt or

to the purchase of other chattels which shall become sub-

ject to the lien, the mortgage is good as against creditors,

if recorded.” The mortgage is sustained in such cases

“ upon the ground that such sale and application of pro-

ceeds is the normal and proper purpose of a chattel mort-

gage, and within the precise boundaries of its lawful op-

eration and effect. It does no more than to substitute the

mortgagor as the agent of the mortgagee to do exactly

what the latter had the right to do, and what it was his

privilege and his duty to accomplish. It devotes, as it

should, the mortgaged property to the payment of the

mortgage debt.” The permission to use the proceeds to

furnish substitute collateral “ provides only for a shifting

of the lien from one piece of property to another taken in

exchange.” Brackett v. Harvey, 91 N. Y. 214, 221, 223.

309, 364; Young v. Upson, 115 Fed. 192. In 1916, Section 230 of the

New York Lien Law was amended to the effect that a mortgage,

pledge, or lien on stocks or bonds given to secure the repayment of a

loan is, if not recorded, absolutely void against creditors unless such

securities are delivered to the mortgagee or pledgee on the day the

loan is made. See N. Y. Laws, 1916, c. 348.

16 Conkling v. Shelley, 28 N. Y. 360; Brackett v. Harvey, 91 We F

214; Spaulding v. Keyes, 125 N. Y. 113; Briggs v. Gelm, 122 App.

Div. 102. See Robinson v. Elliot, 22 Wall. 513, 524; People’s Savings

Bank v. Bates, 120 U. S. 556, 561.

OCTOBER TERM, 1924.

Opinion of the Court. 268 U.S.

On the other hand, if the agreement is that the mortgagor

may sell and use the proceeds for his own benefit, the

mortgage is of no effect although recorded. Seeming

ownership exists in both classes of cases because the mort-

gagor is permitted to remain in possession of the stock in

trade and to sell it freely. But it is only where the unre-

stricted dominion over the proceeds is.reserved to the

mortgagor that the mortgage is void. This dominion is

the differentiating and deciding element. The distinction

was recognized in Serton v. Kessler, 225 U. S. 90, 98.

where a transfer of securities was sustained.’ It was

pointed out that a reservation of full control by the mort-

gagor might well prevent the effective creation of a lien

in the mortgagee and that the New York cases holding

such a mortgage void rest upon that doctrine.

The results which flow from reserving dominion incon-

sistent with the effective disposition of title must be the

same whatever the nature of the property transferred.

The doctrine which imputes fraud where full dominion

is reserved must apply to assignments of accounts al-

though the doctrine of ostensible ownership does not.

There must also be the same distinction as to degrees of

dominion. Thus, although an agreement that the as-

signor of accounts shall collect them and pay the proceeds

to the assignee will not invalidate the assignment which

it accompanies,” the assignment must be deemed fraudu-

lent in law if it is agreed that the assignor may use the

proceeds as he sees fit.

In the case at bar, the arrangement for the unfettered

use by the company of the proceeds of the accounts pre-

17 See note 18, infra.

18 Young v. Upson, 115 Fed. 192. If it is agreed that the trans-

feror may use the original collateral for his own purposes upon the

substitution of other of equal value, the transfer is not thereby in-

validated. Clark v. Iselin, 21 Wall. 360 (book accounts); Serton v.

Kessler, 225 U. 8. 90 (negotiable securities); Chapman v. Hunt, 254

Fed. 768 (book accounts). Compare Casey v. Cavaroc, 96 U. 8. 467.

BENEDICT v. RATNER. 365

353 Opinion of the Court.

cluded the effective creation of a lien ” and rendered the

original assignment fraudulent in law. Consequently the

payments to Ratner and the delivery of the September

list of accounts were inoperative to perfect a lien in him,

and were unlawful preferences.” On this ground, and

also because the payment was fraudulent under the law

of the State, the trustee was entitled to recover the

amount.” ;

Stackhouse v. Holden, 66 App. Div. 423, is relied upon

by Ratner to establish the proposition that reservation

of dominion does not invalidate an assignment of ac-

counts. The decision was by an intermediate appellate

court, and, although decided in 1901, appears never to

have been cited since in any court of that State.” There

was a strong dissenting opinion. Moreover, the case is

perhaps distinguishable on its facts, p. 426. Grecy Vv.

Dockendorf, 231 U. 8. 513, upon which Ratner also re-

lies, has no bearing on the case at bar. It involved as-

signment of accounts, but there was no retention of do-

minion by the bankrupt. The sole question was whether

successive assignments of accounts by way of security,

made in pursuance of a contract, were bad because the

contract embraced all the accounts. The lien acquired

before knowledge by either party of insolvency was held

good against the trustee.

Reversed.

1° Compare Mechanics’ Bank v. Ernst, 231 U.S. 60, 67.

2° Schaupp v. Miller, 206 Fed. 575; Grimes v. Clark, 234 Fed. 604;

Gray v. Breslof, 273 Fed. 526, 527.

21 Mandeville v. Avery, 124 N. Y. 376, 382; Stimson v. Wrigley,

86 N. Y. 332, 338; Dutcher v. Swartwood, 15 Hun (N. Y.) 31.

22 It was cited in Young v. Upson, 115 Fed. 192 (Circ. Ct.); In re

Michigan Furniture Co., 249 Fed. 978 (D. Ct.); and in the opinion

here under review.