New Jersey law, principle that security agreement can be deduced from a variety of documents). Such written evidence must include the debtor's signature and an adequate description of the collateral. See In re Coffee Cupboard Inc., 33 B.R. 668, 672 (E.D.N.Y. 1983). A financing statement "standing alone, does not constitute a security agreement" but indicates only that the secured party may have an interest in the described collateral. In re Modafferi, 45 B.R. at 372.
Here the parties created a valid security interest. The document purporting to constitute the assignment of accounts receivable admittedly does not contain a description of the collateral. But the letter agreement between plaintiffs and Tuxedo, read together with the UCC-1 financing statement, is sufficient to constitute a security agreement and a conditional assignment under the Code. In the Agreement, Tuxedo promises "as security for the payment of this debt" to execute an "assignment of accounts receivable from Mayrich, together with appropriate security interests, UCC-1s." The Agreement explains that Tuxedo will sign two UCC-1 forms and an assignment of the accounts. The financing statements were executed, as was a general assignment form. This is enough to indicate an intent to give plaintiffs a security interest in the Mayrich account.
Mayrich says that while it received notice of the purported assignment, it did not think the documents constituted a valid assignment.
But Mayrich is not entitled to a good faith defense. The rights and defenses available to Mayrich, as account debtor, are determined under § 9-318 of the Code, even when the assignment is conditional for the purposes of creating a security interest. See Chase Manhattan Bank (N.A.) v. State, 40 N.Y.2d 590, 388 N.Y.S.2d 896, 357 N.E.2d 366 (1976) (applying § 9-318 to determine whether court could enforce assignment of accounts receivable and other personal property for purposes of security against account debtor).
Under § 9-318(3), an account debtor is "authorized to pay the assignor" until he or she is notified that the amount due "has been assigned and that payment is to be made to the assignee." N.Y. U.C.C. § 9-318(3); N.J. Stat. Ann. § 12A:9-318(3). Notice of the assignment need not be in any particular form, see General Motors Acceptance Corp. v. Albany Water Bd., 590 N.Y.S.2d 312, 313 187 A.D.2d 894, 896 (3d Dep't, 1992), and notice of a fact is presumed if an account debtor has actual knowledge of it, has received notice of it, or from "all the facts and circumstances known to him at the time[,]" has reason to know that it exists, N.Y. U.C.C. § 1-201(25); N.J. Stat. Ann. § 12A:1-201(25). See also Banque Arabe et Internationale D'Investissement v. Bulk Oil (USA) Inc., 726 F. Supp. 1411, 1418 (S.D.N.Y. 1989).
If the account debtor doubts the adequacy of the notification or the validity of the assignment, he or she may not disregard the notice, but must request the assignee to furnish "reasonable proof that the assignment has been made." Banque Arabe, 726 F. Supp. at 1418. See also N.Y. U.C.C. § 9-318, Official Comment 5; N.J. Stat. Ann. § 12A:9-318, Official Comment 5. If doubts persist, "the account debtor may not be safe in disregarding [the notice] unless he has notified the assignee with commercial promptness as to the respects in which identification or proof is considered defective." N.Y. U.C.C. § 9-318, Official Comment 5; N.J. Stat. Ann. § 12A:9-318, Official Comment 5.
It is undisputed that beginning with the March 11, 1994 facsimile, Mayrich was put on notice that Tuxedo had assigned its accounts receivable to plaintiffs. That letter specified which account had been assigned and that payment should be made directly to plaintiffs. Furthermore, plaintiffs also forwarded to Mayrich a copy of the Agreement in which Tuxedo promises to execute an assignment of the Mayrich accounts as security, and a copy of the UCC-1 form recording their security interest in Tuxedo's Mayrich accounts.
If Mayrich doubted the validity of the assignment, it should have protested or asked for further proof. It did not do so and now cab be held liable for the outstanding amount due on Tuxedo's debt to plaintiffs.
Finally, Mayrich says that plaintiffs waived whatever rights they had under the assignment by permitting Mayrich to continue to make payments to Tuxedo.
An assignee waives its rights if it fails to protest the account debtor's remittance of funds directly to the assignor. See General Motors Acceptance Corp. v. Clifton-Fine Central School Dist., 85 N.Y.2d 232, 235-36, 623 N.Y.S.2d 821, 822-23, 647 N.E.2d 1329 (1995).
But plaintiffs claim, and Mayrich does not dispute, that it had no knowledge that Mayrich was making regular payments to Tuxedo until September 1996, after the suit was filed. Even if plaintiffs did know about these payments, they repeatedly demanded that Mayrich pay them directly, thereby precluding the finding of a waiver. Cf. id. (plaintiff's failure to tell assignee that payment should be made to it precluded summary judgment).
It is undisputed that, for the purposes of creating a security interest, Tuxedo conditionally assigned to plaintiffs its Mayrich accounts receivable. Mayrich had notice of this assignment but failed to respond in any way.
The court grants plaintiffs' motion for summary judgment and directs entry of judgment against Mayrich in the amount of $ 20,723.23. The court refers to Magistrate Judge A. Simon Chrein for report and recommendation the determination of whether plaintiffs are entitled to attorneys' fees, interest, costs and disbursements, and if so, in what amount.
Dated: Brooklyn, New York
August 22, 1997
Eugene H. Nickerson, U.S.D.J.
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