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This is true whether the right of disposition for the transferor's use be reserved in the instrument or by agreement in pais, oral or written;- whether the right of disposition reserved be unlimited in times or be expressly terminable by the happening of an event;* whether the transfer cover all the property of the debtor' or only a part;8 whether the right of disposition extends to all the property transferred' or only to a part thereof;10 and whether the instrument of transfer be recorded or not.11

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, 12 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

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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. ? 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. ' 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 accounts 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 detailed filing provisions are complied with. It is possible that, if its conditions are performed, the section does away with the rule " that retention of possession by the mortgagor with power of sale for his own benefit is fraudulent as to creditors.”

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

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or of accounts, reservation of dominion inconsistent with the effective disposition of title must render the transaction 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 chattels are mortgaged (or sold) and possession of the property is not delivered to the mortgagee (or vendee).18 The presumption 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 substitute for delivery do not include accounts. A title to an account good against creditors may be transferred without notice to the debtor 14 or record of any kind.15 But it is

13 Smith v. Acker, 23 Wend. 653; Griswold v. Sheldon, 4 N. Y. 580, 590; Edgell v. Hart, 9 N. Y. 213, 218; Conkling v. Shelley, 28 N. Y. 360. The statutes to this effect merely embody the commonlaw 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, c. 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. S. 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 presumption 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.

14 Williams v. Ingersoll, 89 N. Y. 508, 522.

15 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.)

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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 ownership 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 conclusively 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 proceeds of their sale to the payment of the mortgage debt or to the purchase of other chattels which shall become subject 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 proceeds is the normal and proper purpose of a chattel mortgage, and within the precise boundaries of its lawful operation 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 N. Y. 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.

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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 mortgagor is permitted to remain in possession of the stock in trade and to sell it freely. But it is only where the unrestricted 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 Sexton 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 mortgagor 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 inconsistent 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 although 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 assignor of accounts shall collect them and pay the proceeds to the assignee will not invalidate the assignment which it accompanies,18 the assignment must be deemed fraudulent 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 transferor may use the original collateral for his own purposes upon the substitution of other of equal value, the transfer is not thereby invalidated. Clark v. Iselin, 21 Wall. 360 (book accounts); Sexton v. Kessler, 225 U. S. 90 (negotiable securities); Chapman v. Hunt, 254 Fed. 768 (book accounts). Compare Casey v. Cavaroc, 96 U. S. 467. Reversed.

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cluded the effective creation of a lien 19 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.20 On this ground, and also because the payment was fraudulent under the law of the State, the trustee was entitled to recover the amount.21

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 accounts. 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.22 There was a strong dissenting opinion. Moreover, the case is perhaps distinguishable on its facts, p. 426. Greey v. Dockendorff, 231 U. S. 513, upon which Ratner also relies, has no bearing on the case at bar. It involved assignment of accounts, but there was no retention of dominion 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.

10 Compare Mechanics' Bank v. Ernst, 231 U. S. 60, 67.

20 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.

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