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United States District Court, Southern District of Illinois, N.D

June 19, 1969


The opinion of the court was delivered by: Robert D. Morgan, District Judge:



This matter arises on Certificate of Review filed April 15, 1969 by Stephen J. Covey, Referee in Bankruptcy of this Court, as a result of Petition for Review by Barry M. Barash, Trustee of the captioned bankrupt estate. The Court has considered said certificate, together with arguments and briefs of said Trustee and for the bankrupt.

The Opinion and Order of the Referee, of which review is sought, filed April 3, 1969, sets forth findings and analysis of the applicable law as follows:

"On January 30, 1969, FRANK W. LAGERSTROM, the bankrupt herein, executed the following document:

                FOR THE YEAR 1968

  `In consideration of legal services rendered and
  to be rendered in connection with bankruptcy
  proceedings, the undersigned hereby assign and
  transfer to BERNARD G. STUTLER all their interest
  in and to any claim for refund against the United
  States Government for refund of income taxes
  over-withheld during the calendar year 1968, to
  the extent of $245.00.

`DATED this  30th  day of January 1969.

                             S/  FRANK W. LAGERSTROM
                                 Frank W. Lagerstrom

                             S/ ____________________
                                 Dorothy Lagerstrom'

"On January 31, 1969, FRANK W. LAGERSTROM, filed a voluntary petition in bankruptcy in the United States District Court, for the Southern District of Illinois, with BERNARD G. STUTLER appearing as his attorney.

"On February 19, 1969, a first meeting of creditors was held and BARRY M. BARASH was appointed Trustee. On February 24, 1969, said Trustee filed a petition asking that this Court declare the above assignment invalid because it failed to comply with the Federal Assignment of Claims Act, 31 U.S.Code Section 203, and with Section 9, Chapter 26 of the Illinois Revised Statutes, which is the section of the Uniform Commercial Code, which deals with the creation and perfection of security interests in personal property.

"At the hearing on said petition it was stipulated that the amount of the tax refund was $70.00, that it has not as yet been paid to the bankrupt, and that no compliance was made by BERNARD G. STUTLER, the assignee, with the provisions of the Federal Assignment of Claims Act, or the Illinois Uniform Commercial Code.


"Ch. 31, Sec. 203 of the U.S.Code, provides, in part, as follows:


  `All transfers and assignments made of any claim
  upon the United States, or of any part or share
  thereof, or interest therein, whether absolute or
  conditional, and whatever may be the
  consideration therefor, and all powers of
  attorney, orders, or other authorities for
  receiving payment of any such claim, or of any
  part or share thereof,

  except as hereinafter provided, shall be
  absolutely null and void, unless they are freely
  made and executed in the presence of at least two
  attesting witnesses, after the allowance of such
  a claim, the ascertainment of the amount due, and
  the issuing of a warrant for the payment thereof.
  Such transfers, assignments, and powers of
  attorney, must recite the warrant for payment,
  and must be acknowledged by the person making
  them, before an officer having authority to take
  acknowledgments of deeds, and shall be certified
  by the officer; and it must appear by the
  certificate that the officer, at the time of the
  acknowledgment, read and fully explained the
  transfer, assignment, or warrant of attorney to
  the person acknowledging the same. * * *

  4. That in the event of any such assignment, the
  assignee thereof shall file written notice of the
  assignment together with a true copy of the
  instrument of assignment with (a) the contracting
  officer or the head of his department or agency;
  (b) the surety or sureties upon the bond or
  bonds, if any, in connection with such contract;
  and (c) the disbursing officer, if any,
  designated in such contract to make payment.'

The Trustee contends that since the above Section was not complied with, the assignment of the tax refund is absolutely null and void. This argument must be rejected. In Danning v. Mintz, 367 F.2d 304 (C.A. 9th) the Court of Appeals had before it the exact question presented herein in regard to the compliance with the Federal Assignment of Claims Act. The Court held that the statute was for the protection of the government and that the assignment, while not valid against the government, was valid between the bankrupt and his attorney and, therefore, was valid as against the Trustee. The Court, on page 306, stated:

  `* * * The Ninth Circuit has explicitly rule
  (sic) that Section 203 is meant for the
  protection of the United States and though an
  assignment may not comply with the terms of this
  section, the assignment may, nevertheless, be
  enforceable between the parties to the
  assignment. * * *

  `* * * Here the only contest is between the
  assignee and the trustee in bankruptcy of the
  assignor, and the government is not exposed to
  the threat of multiple claims since the claim has
  already been paid and the government's liability
  is at an end. Thus, since the statute (31 U.S.C.
  Sec. 203) is for the protection of the
  government, and not for the regulation of the
  assignment as between the private parties
  involved (here the assignors Mr. and Mrs.
  Samuels, the assignee Mintz, and the trustee
  Danning), the federal statute does not apply and
  should not have been deemed controlling by the

The matter was then referred back to the Referee to determine whether the assignment of the tax refund from the bankrupts to their attorney was valid under state law.

"The Trustee further contends that the assignment of the income tax refund is void as against him because the provisions of Section 9 of the Uniform Commercial Code, in regard to the perfection of security interests in personal property, has not been complied with. Chap. 26, Sec. 9-102 of the Illinois Revised Statutes, provides, in part, as follows:

  `POLICY AND SCOPE OF ARTICLE. * * * this article
  applies so far as concerns any personal property
  and fixtures within the jurisdiction of this

    (a) to any transaction (regardless of its form)
    which is intended to create a security interest
    in personal property or fixtures including
    goods, documents, instruments, general
    intangibles, chattel paper, accounts or
    contract rights; * * *'

Sec. 9-302, of the same Chapter, provides, in part, as follows:


  THIS ARTICLE DO NOT APPLY. (1) A financing
  statement must be filed to perfect all security
  interests except the following: * * *'

(not applicable)

The Trustee contends that the bankrupt's attorney has taken an assignment of an account receivable as security for the payment of his fees and that, therefore, a financing statement must be filed in order for the assignment to be valid. This argument also must be rejected. It is clear from the provisions of Section 9, quoted above, that they apply only to secured transactions and attempts to create security interests in personal property. In the instant case the bankrupt was not attempting to create a security interest in the tax refund — instead he made an outright conveyance and transfer of the refund to his attorney as part payment on his fees.

"If the bankrupt had been indebted to a creditor and had assigned the tax refund as security for this indebtedness, then the provisions of the Commercial Code would apply. However, in the instant case there was no intent to create a security interest and the provisions of the Commercial Code are not applicable."

The argument in this court developed no convincing contention and the Court has found no authority to indicate that the Referee's conclusion is erroneous. As a matter of fact, the Trustee now concedes, based on Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966), and analysis thereof in Cowan's Bankruptcy Law and Practice, 1969 pocket part at page 137, and Collier on Bankruptcy, Volume 4A, Section 4.1 at page 400, that the Referee is probably correct, but, in effect, asks the decision of this Court on the question to further establish the law in this district.

The Court fully concurs with the Referee Covey's opinion on the facts presented here, and his said Opinion and Order entered in this matter on April 3, 1969 is in all respects affirmed.


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