Fall River Trust Co. v. B.G. Browdy, Inc.

Brief Fact Summary.

Party 1 sued Party 2 to recover certain monies from an assigned account.

Synopsis of Rule of Law.

If "missing goods [are] processed under the contracts which g[i]ve rise to the assigned accounts, it [ ] make[s] no difference when [ ] notice of the assignment [is given]. The rights of the assignee would be subject to any defence or claim arising from the terms of the bailment contract between the assignor and the account debtor regardless of notice."

Facts.

Watuppa Finishing Corp. ("Watuppa"), was in the dying and finishing business.  Watuppa was adjudicated bankrupt in July of 1959.  The Defendant, B.G. Browdy, Inc. (the "Defendant") sporadically delivered goods to Watuppa for dying and finishing.  In order to borrow money, Watuppa would assign its account receivables owed by the Defendant to the Plaintiff, Fall River Trust Co. (the "Plaintiff").  The Plaintiff always notified the Defendants of the assignments.  The Defendant then would pay the Plaintiff the amounts due on the accounts.  When Watuppa declared bankruptcy, it had assigned accounts worth $9,496.16 to the Plaintiff in return for $7,596.93.  The audit report shows the Defendant gave Watuppa certain processing material worth $42,393.10, which due to the bankruptcy is not recoverable.  However, the Plaintiff sues the Defendant for $7,596.93 on the assigned accounts.  The trial court sided with the Plaintiff.

Issue.

In order for the debtor to have a defense against an assignor, does the defense need to arise from the particular accounts assigned?

Held.

There is not enough information to render a decision and therefore the case must be remanded.  The court relies on G.L. c. 106, §9-318(1) of the Uniform Commercial Code ("UCC").  The court observes that if "the missing goods were processed under the contracts which gave rise to the assigned accounts, it would make no difference when the plaintiff gave Browdy notice of the assignment. The rights of the assignee would be subject to any defence or claim arising from the terms of the bailment contract between the assignor and the account debtor regardless of notice."  However, the audit report did not "show whether the missing goods were processed under the contracts which gave rise to the assigned accounts."  If the missing goods were not those upon which the account arose G.L c. 106, §9-318(1)(b) of the UCC would apply and "whether the bank's rights would be subject to Browdy's claim would hinge on whether Browdy's claim accrued before it received notice of the assignments."

Discussion.

This case offers an interesting discussion about the interaction of bankruptcy law with the law of assignments.