H. S. Mann Corp. v. Moody

• Citation: 144 Cal.App.2d 310,301 P.2d 28
• Court: California Court of Appeals
• Decision Date: 04 September 1956
• Parties: H. S. MANN CORP., a corporation doing business as California Smelting and Refining Co., Plaintiff and Respondent, v. Bryce MOODY, George E. Moody, Individually and doing business as Moody Sprinkler Co., and Frank Moody, Barbara Moody, H. R. Goedert (sued as John Doe One), John Doe Two, Jane Doe One, Jane Doe Two, Doe and Roe, a copartnership, and Advance Industrial Finance Company, a limited partnership (sued as Doe Corporation, a corporation), Defendants, Advance Industrial Finance Company, a limited partnership and H. R. Goedert, Appellants. Civ. 21570.

Page 28

301 P.2d 28

144 Cal.App.2d 310

H. S. MANN CORP., a corporation doing business as California Smelting and Refining Co., Plaintiff and Respondent, v. Bryce MOODY, George E. Moody, Individually and doing business as Moody Sprinkler Co., and Frank Moody, Barbara Moody, H. R. Goedert (sued as John Doe One), John Doe Two, Jane Doe One, Jane Doe Two, Doe and Roe, a copartnership, and Advance Industrial Finance Company, a limited partnership (sued as Doe Corporation, a corporation), Defendants, Advance Industrial Finance Company, a limited partnership and H. R. Goedert, Appellants.

Civ. 21570.

District Court of Appeal, Second District, Division 2, California.

Sept. 4, 1956.

Leland & Plattner and N. Stanley Leland, Los Angeles, for appellants.

Kopald & Mark, Beverly Hills, Arthur Smith, Los Angeles, for respondent.

ASHBURN, Justice.

This appeal presents the problem of priority between assignments of certain receivables, plaintiff having purchased same while they were in futuro and defendant after they were in esse. Judgment went for plaintiff in the sum of $3,501.77. It runs in favor of H. S. Mann Corp., doing business as California Smelting and Refining Co., against Advance Industrial Finance Co., a limited partnership, and H. R. Goedert, one of the general partners. Defendants appeal from the judgment.

On September 16, 1952, Bryce Moody was indebted to H. S. Mann in the sum of $8,595.70 for raw materials which he had purchased for his factory. Bryce's father, George Moody, was engaged in manufacturing sprinkler equipment and was buying castings from Bryce. On the last mentioned day Bryce by a writing assigned to Mann an account owing to Bryce by George Moody as it existed on that date 'and as it may exist at any time during the term of this agreement.' In making such assignment it was Bryce's purpose to use the money due from the account to enable him to purchase his further metal requirements from Mann without direct extension of credit to Bryce. It was the latter's agreement to cause his invoices and billings to bear the notation that same had been transferred, and were payable, to Mann. 'Notice of Assignment of Account Receivable' was duly recorded September 18, 1952, when the balance due from George Moody to Bryce was apparently $918.

Bryce Moody and George Moody, ¹ were originally defendants, but the action was dismissed as to them. The written contract of September 16, 1952, designates Bryce Moody as 'Moody' and H. S. Mann Corp. as 'Mann.' It contains the following pertinent provisions: '1. Moody hereby assigns to Mann his account receivable from George Moody, doing business as Moody Sprinkler Co., referred to hereinafter as The Account, * * * as that account exists as of this date, and as it may exist at any time during the term of this agreement. * * * 4. * * * Moody agrees that he will cause his invoices and billings to The Account to bear the notation that same have been transferred and are payable only to Mann, and that he will cause copies thereof to be sent to Mann at the same time they are sent to The Account, * * * 6. This agreement is, and shall be construed as, a sale by Moody to Mann of Moody's account receivable from The Account as it exists this date, and as it will exist in the future.'

Mann continued to sell materials to Bryce who, when castings were sold and delivered to George, would furnish Mann with a memorandum of each delivery. Mann would then send an invoice to George containing a notice that Bryce had assigned to him certain specified invoices owing from George to Bryce. Each of such assigned invoices was paid by George in due course until defendant Advance Industrial Finance Company entered the scene. On February 3, 1953, Bryce sold to Advance invoices totaling $2,677.19, and on February 13, 1953, sold it further invoices aggregating $824.58. On February 3 Bryce owed Mann $6,896.19, and on February 13, $5,778.66. The contract between them was still in existence and the recorded notice of assignment had never been withdrawn. Defendant collected from George Mann $3,501.77 upon the particular invoices sold to it. Bryce later went into bankruptcy.

Counsel debate the applicability and effect of Chapter IIIb of Title 14, Part 4 Division 3 of the Civil Code, §§ 3017-3029, which chapter is headed 'Assignment of Accounts Receivable'. The title of the original act, Stats.1943, p. 2542, is: 'An act to add a new chapter to Title 14 * * * of the Civil Code to be known as Chapter 3b, relating to the assignment of accounts receivable and providing for the giving of notice thereof.' Said chapter was enacted as the result of Corn Exchange Nat. Bank & T. Co. v. Klauder, 1943, 318 U.S. 434, 63 S.Ct. 679, 87 L.Ed. 884, and in furtherance of a policy of furthering non-notification financing of receivables. (The history of this statute is discussed in 17 So.Cal.L.Rev. 303; 33 Cal.L.Rev. 40; 38 Cal.L.Rev. 308; In re Nelson's Estate, 211 Iowa 168, 233 N.W. 115, 72 A.L.R. 856; and Durkin v. Durkin, 133 Cal.App.2d 283, 291-292, 284 P.2d 185.) In the Klauder case a creditor's committee of Quaker City Sheet Metal Company took assignments of its accounts receivable, which assignments were recorded on the company's books but no notice was ever given to the debtors whose obligations had been thus transferred. The company having gone into bankruptcy within four months, the trustee challenged the effectiveness of the assignments as against the bankruptcy estate. Section 60 sub. a, of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, as then in existence is set forth in the footnote, so far as here pertinent. ² The case arose under the law of Pennsylvania which was to the effect that, in case of failure of an assignee of a chose in action to give notice to the debtor, a subsequent good-faith assignee who gives such notice acquires a superior right. The court held that the trustee in bankruptcy had the same rights as a bona fide subsequent purchaser, and said in 318 U.S., at page 437, 63 S.Ct. at page 681: 'So long as the transaction is left open to possible intervening rights to such a purchaser, it is vulnerable to the intervening bankruptcy. By thus postponing the effective time of the transfer, the debt, which is effective when actually made, will be made antecedent to the delayed effective date of the transfer and therefore will be made a preferential transfer in law, although in fact made concurrently with the advance of money. In this case the transfers, good between the parties, had never been perfected as against good-faith purchasers by notice to the debtors as the law required, and so the conclusion follows from this reading of the Act that the petitioners lose their security under the preference prohibition of § 60, sub. b.'

Under California law then existing notice had to be given to the debtor of the fact of assignment of a chose in action in order to effectuate it as one having priority over a subsequent assignment; the later assignee acquired the better right if he bought without knowledge of the existing assignment and gave notice to the debtor before the first assignee did so. Graham Paper Co. v. Pembroke, 124 Cal. 117, 120, 56 P. 627, 44 L.R.A. 632; Adamson v. Paonessa, 180 Cal. 157, 163, 179 P. 880; Smitton v. McCullough, 182 Cal. 530, 535, 189 P. 686; First Nat. Bank v. Pomona Tile Mfg. Co., 82 Cal.App.2d 592, 605, 186 P.2d 693; City of Los Angeles v. Knapp, 7 Cal.2d 168, 171, 60 P.2d 127; 1 Cal.Jur.2d § 15, p. 332.

Various states met the Klauder decision in different ways. (33 Cal.L.Rev. 40, 86.) California, Ohio and Missouri adopted recordation statutes of varying content (id. p. 96). Sections 3017-3029, Civil Code, Chapter IIIb, enacted on May 26, 1943, constitute the California response to the difficulty.

The transactions at bar occurred in September, 1952, and February, 1953. Between 1951 and September 9, 1953, § 3017 read, in part, as follows: "(1) 'Account' means an open book account, mutual account, or account stated, due or to become due, carried in the regular course of business and not represented by a judgment, note, draft, acceptance, or other instrument for the payment of money; it includes rights under an unperformed contract for work, goods or services which in the regular course will result in an open book account." Section 3018 said, in part: 'An assignment of an account is entitled to priority over any subsequent assignment of the same account; provided, that as between two or more assignees who receive written assignments for value without notice, the assignee whose notice of assignment or of intention to assign, is first filed as provided in this chapter is entitled to priority over all other assignees of the same account. Except as to any credit extended by a creditor after the notice provided for in this chapter is filed, an assignment of an account shall be invalid as against any creditor of the assignor without actual notice unless notice of or of intention to make the assignment as provided for in this chapter is filed at the time of or before the execution of the assignment or within five days thereafter.' The county recorder is designated as the 'filing officer', § 3017, subd. (6), and § 3019 prescribes the necessary contents of the recorded notice.

It appears that Bryce kept in his books no account with George showing the transactions giving rise to receivables. But exhibit B is a book account kept in George's business which does show those sales and the resulting debits and credits. It is settled law that a claimant can establish his claim on an open account by proof of the account as it appears in defendant's books. Millet v. Bradbury, 109 Cal. 170, 173, 41 P. 865; Richmond v. Frederick, 116 Cal.App.2d 541, 546-550, 253 P.2d 977; Gardner v. Rutherford, 57 Cal.App.2d 874, 884, 136 P.2d 48; Moss v. Underwriters' Report, Inc., 12 Cal.2d 266, 83 P.2d 503; Shanklin v. Scribner, 62 Cal.App. 487, 217 P. 130. The discussion of the law must start...