The opinion of the court was delivered by: MOTLEY
Memorandum Opinion and Order
This is a petition to review an order of Referee in Bankruptcy Babitt filed on January 18, 1972. The relevant facts underlying that order are as follows. Arista Trading Co. (Arista), now bankrupt, was a partnership owned by Joseph L. Mollick and Irving Mollick, who are also the sole stockholders of Appliance Packing and Warehousing Corp. (Appliance, the subject of this bankruptcy proceeding.) Arista was engaged in the purchase and sale of appliances for the export market from Westinghouse Electric International Co. (WEICO). Appliance packaged and warehoused appliances for export, and most, if not all, of its business came from Arista.
In July 1964 Arista owed WEICO approximately $147,000. On July 28, 1964, Arista and Appliance jointly executed a promissory note in favor of WEICO for $142,000. Real property owned by Appliance formed the collateral for this note. After payments of about $44,000 had been made Arista defaulted. This note was later extended under subsequent agreements. A second promissory note for $37,000 was executed by Arista and Appliance on June 19, 1966.
After Arista and Appliance became bankrupts, WEICO filed a claim in the Appliance bankruptcy for $111,639.16, representing the unpaid balance on the two notes. Fifty thousand dollars of this sum was recognized as a secured claim and paid to WEICO, and the balance as a general claim.
The trustee of Appliance, considering Appliance to have been an accommodation maker of the two notes, then moved for an order subrogating him to such rights as WEICO has against Arista. The Referee granted this motion, subrogating Appliance to the right of WEICO against Arista to the extent of $111,639.16 and granting the trustee in bankruptcy of Appliance the right to claim an offset against a claim for $116,649.51 filed by Arista's trustee in bankruptcy in this Appliance bankruptcy proceeding by the sum of $111,639.16.
The Referee reasoned that § 3-415 of the Uniform Commercial Code applies, and under that section an accommodation party who pays on an instrument is subrogated to the rights of the holder and should have recourse on the instrument. This is true regardless of whether the accommodation party received value for his signature or not.
The trustee in bankruptcy of Arista, petitioner here, argued that the U.C.C. does not apply because the transaction occurred prior to the effective date of that statute, and that the applicable law was New York Negotiable Instruments Law § 55, Laws of 1898, Ch. 336, § 23 (repealed 1964), which was superseded by the U.C.C. Under § 55 of the Negotiable Instruments Law, an accommodation party is one who has signed an instrument as a maker "without receiving value therefor." Appliance did receive value; therefore, it is not an accommodation
before the effective date . . . of this Act and the rights, duties and
for the reasons which follow.
II. Applicability of the U.C.C.:
New York's version of the U.C.C. took effect on September 27, 1964; as noted above, the first note was executed on July 28, 1964 and the second on June 19, 1966. Section ...