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 possession 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 McCauley, 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

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 ownership, 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 disregarded, 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 considerations of public interest as here exist point clearly that way, particularly since those who enter into business relations know full well that the utilization of accounts receivable, in order to keep business liquid, is one of the commonest practices of everyday business.

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

The Hub Carpet Company was adjudicated bankrupt by the federal court for southern New York in involuntary proceedings commenced September 26, 1921. Benedict, who was appointed receiver and later trustee, collected the book accounts of the company. Ratner filed in that court a petition in equity praying that the amounts so collected be paid over to him. He claimed them under a writing given May 23, 1921-four months and three days before the commencement of the bankruptcy proceedings. 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

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 collections which had been made by the company after September 17 and turned over to Ratner pursuant to his request made on that day. The company was then insolvent and Ratner had reason to believe it to be so. These accounts also had apparently been acquired by the company 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 collected by the company in September and turned over to him; that by delivery of the list of the accounts outstanding 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 Ratner; 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.

The rights of the parties depend primarily upon the law of New York. Hiscock v. Varick Bank of N. Y., 206 U. S. 28. It may be assumed that, unless the arrangement of May 23 was void because fraudulent in law, the original assignment of the future acquired accounts became 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;1 and that the assignment 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. Thompson 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 assignment of May 23 was in law fraudulent.

The Hub Carpet Company was, on May 23, a mercantile concern doing business in New York City and proposing 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 outstanding 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. Compare New York Security & Trust Co. v. Saratoga Gas, etc. Co., 159 N. Y. 137; Zartman v. First National Bank, 189 N. Y. 267.

demand a full disclosure of the business and financial conditions; to require that all amounts collected be applied in payment of his loans; and to enforce the assignment 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 to replace accounts collected by other collateral 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 existence of the assignment was to be kept secret. The business was to be conducted as theretofore. Indebtedness was to be incurred, as usual, for the purchase of merchandise 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 delivered 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 dispose of the same, or to apply the proceeds thereof, for his own uses is, as to creditors, fraudulent in law and void.2

2 Griswold v. Sheldon, 4 N. Y. 580; Edgell v. Hart, 9 N. Y. 213; Russell 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; Skilton 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. S. 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. S. 545.