This case involves the application of the preference provisions of § 60, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, to loans made on the security of assigned choses in action against the United States. The assignments were neither recorded as assignments of accounts receivable nor made in compliance with the Federal Assignment of Claims statute, 31 U.S.C.A. § 203, but United States Government warrants evidencing or representing the assignor's rights to payment of the choses in action are by virtue of the assignment agreement in the possession of the assignee.

Because neither a copy of the assignment agreement nor a copy of the warrants was introduced into evidence, and because the stipulation of facts upon which the case was submitted to the Referee does not include several essentials to a final determination of the rights of the parties, it has been somewhat difficult to accommodate or fit the rationale of the trial court and the argument of counsel to the ultimate facts which we find necessary to decide this case. One factor which we believe goes to the very core of the controversy, but the importance of which does not seem to have been recognized clearly either in the judgment or in the argument of counsel, is that two different stages were involved in the security arrangement that gave rise to this dispute. The first stage was the assignment of certain accounts receivable to M. M. Landy, Inc., and the second was the transfer of the warrants, as contemplated in the agreement. It is the right to the warrants, or the right to money which they evidence or represent, that is in issue here.

This proceeding was commenced by a petition filed in the pending bankruptcy case, in effect alleging that M. M. Landy, Inc. (hereinafter "Landy") was in possession of certain United States Government warrants issued to the bankrupt; that under Federal laws the said warrants were not assignable and that, therefore, the warrants were the property of the bankrupt and should be turned over to the receiver. To this petition, and in response to an order to show cause, appellant admitted possession but alleged the warrants were the property of Landy, having been purchased for good and valuable consideration. The issue was tried by the Referee upon the following stipulation of the facts which the parties and Referee deemed sufficient:

"1. The bankrupt entered into an agreement with M. M. Landy, Inc. to assign certain receivables then due and to become due in the future to M. M. Landy, Inc. as security for certain cash advances made by M. M. Landy, Inc. to said bankrupt.

"2. In accordance with said agreement, said bankrupt was advanced certain monies by M. M. Landy, Inc. and assigned as security the accounts receivable then due and owing by the United States Government to Continental Charters [sic], Inc.

"3. In accordance with Section 524 of the Florida Statutes, and [sic] assignment was filed with the Secretary of State naming M. M. Landy and H. J. Mahler as assignees and Continental Charters, Inc. as assignor on February 11, 1952.

"4. That there is no record of a notice of assignment being filed with the office of the Secretary of State reflecting M. M. Landy, Inc. as assignee and Continental Charters, Inc. as assignor, and there was no renewal of the notice of assignment in accordance with Section 524 of the Florida Statutes of the original assignment between M. M. Landy and H. J. Mahler as assignees and Continental Charters, Inc. as assignor.

"5. That M. M. Landy, Inc. is now holding United States Government warrants amounting to the sum of $8,615.45 in which Continental Charters, Inc. is reflected as the payee.

"6. That the United States Government has not been notified of the assignment of Continental Charters, Inc. to M. M. Landy, Inc., of any accounts receivable and that M. M. Landy, Inc. has not availed itself of the provisions of the United States Code Annotated as reflected in Title 31, Section 203.

"7. M. M. Landy has a valid assignment of accounts receivable of Continental Charters, Inc. and they have exercised continuous dominion over prior accounts receivable assigned to them by Continental Charters, Inc. by virtue of said agreement."1

The Referee's findings state, and we accept as fairly inferred from the stipulation, "that present consideration was given to the bankrupt at the time of the assignment of the accounts receivable, of which said Government warrants represent payments."2 No copy of the warrants was introduced into the record or attached as an exhibit, but from the stipulation and from the statements in the appellee's brief that "certain monies were due the bankrupt on an open account receivable, and warrants were issued by the U. S. Government to pay said account," and "we agree that the warrants are non-negotiable," we conclude that the parties agreed that the warrants are non-negotiable orders on the Treasury to pay certain sums to the bankrupt, due on the assigned claims. There was no stipulation and no finding that Landy, or any of its agents had, at the time the transfer was made, reasonable cause to believe that Continental was insolvent, which is a fact essential to avoiding a preference, under 11 U.S.C.A. § 96, sub. b.

On the basis of these facts the Referee concluded that Landy's security interest was never perfected under § 60, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a, and that there was a voidable preference under that section; accordingly, he ordered Landy to turn over the warrants to the Receiver. The district court affirmed the Referee's order.

We are obliged to reverse the order on the ground that no finding was made that the transferee had reasonable ground to believe that Continental was insolvent either at the time of delivery to it of the warrants or even immediately before bankruptcy, nor was any evidence introduced to prove this fact essential to the Receiver's case. 11 U.S.C.A. § 96, sub. b; 3 Collier, Bankruptcy (14th Ed.) ¶ 60.52. We think the Referee and trial court erred in another respect, in finding that Landy's security interest was never perfected. The proper decision of that matter turns upon the construction of two statutes, the Federal Assignment of Claims statute, 31 U.S.C.A. § 203, and the Florida Assignment of Accounts Receivable Act, Fla.Stats.Ann. §§ 524.01-524.09; and upon the question whether under Florida law Landy had a perfected pledge.

I. Effect of 31 U.S.C.A. § 203. — Although the Receiver's original petition was based solely on this point, appellant's brief discusses this statute3 in a very cursory manner, and it is not even cited in the Receiver's brief. There is some conflict in the authorities as to the effect of this statute as between the parties to a non-conforming assignment. The cases of National Bank of Commerce of Seattle v. Downie, 218 U.S. 345, 31 S. Ct. 89, 54 L. Ed. 1065, and Spoffard v. Kirk, 97 U.S. 484, 24 L. Ed. 1032, which said that such an assignment was of no effect and unenforceable even between the parties thereto, have never been expressly overruled, although Martin v. National Surety Company, 300 U.S. 588, 57 S. Ct. 531, 81 L. Ed. 822, distinguishing Downie on the ground that there, payment had not been made by the Government at the time the assignee sought to enforce the assignment, reached a result quite inconsistent with the ratio decidendi in Downie. See In re Italian Cook Oil Corp., 3 Cir., 190 F.2d 994; In re Webber Motor Co., D.C.D.N.J., 52 F. Supp. 742; Note, "The Assignment of Government Contracts as Collateral," 101 U.Pa.L.Rev. 106, 107-108. We need not go so far here as to say that an assignment of an unliquidated claim would be enforceable between the parties, however, because here warrants had been issued prior to bankruptcy, cf. In re Meadow Sweet Farms, Inc., D.C.,W.D.N.Y., 32 F. Supp. 119; but the facts of this case do go beyond those of the Martin case — where payment had been made by the Government ante litem motam — and we therefore decide that an assignment of a claim against the Government not conforming to the statute, but after the issuance of warrants, is valid as against a bankruptcy receiver if it is perfected according to local law and otherwise meeting the tests of § 60, sub. a of the Bankruptcy Act. See also Annotation, 12 A.L.R. 2d 460, 468. Of course, our decision does not deprive the Government of its defense in any action against it, or to any rights to setoff it may have against either assignor or assignee.

We conclude, then, that failure to comply with the Federal Assignment of Claims statute is immaterial in the decision of this case. By stipulation, Landy's security interest is not protected by the methods provided by this statute. Nevertheless, we recognize that there may be alternative ways of perfecting a security interest in a claim against the Government, under State law, which are valid as against a trustee or receiver in bankruptcy.

II. Effect of Florida Statutes §§ 524.01-524.09. — The words of the Florida statute which we deem crucial in the instant case are those printed in italics in the margin.4 Those words assume the existence under Florida law of the type of non-negotiable instruments which embody or "reify," so to speak, obligations. We have not found any Florida cases defining this class of non-negotiable instrument; indeed, we have not found a single instance where the pledge of a non-negotiable instrument was held in Florida to have the effect of cutting off a prior hypothecation of the obligation to which it related. But a dictum in Walters & Walker v. Whitlock, 9 Fla. 86, 102, suggests that Florida might recognize this kind of non-negotiable instrument:

"It would seem to us, that, in ordinary cases, delivering the evidence of indebtedness would be the most conclusive mode of giving possession. This was so held in the case of United States v. The [President, Director, and Company of the] Bank of the United States, [8] Robinson's Reports, [262] page 413. In that case, the Supreme Court of Louisiana says: `We do not know of a more conclusive mode of giving possession of a debt than by delivering the evidence of it.'"

Therefore, we conclude that although there are no Florida cases of which we are aware holding that any non-negotiable instrument can "so represent the obligation that an assignee who takes possession of it, takes rights superior to those of a prior assignee of the obligation who did not take possession of the instrument," there must certainly be such instruments. And we think that the statutory language indicates clearly that the Florida legislature intended to except from "accounts receivable" that class of non-negotiable instruments the delivery of which effects a valid pledge of the obligations represented by or embodied in those instruments. In other words, to take the present example, if the delivery of the warrants here was a pledge of the claim against the Government, Landy's failure to record did not prevent his security interest from being a perfected one under the terms of the Florida statute. We shall therefore proceed to inquire as to the scope of the class of non-negotiable instruments which embody obligations, for the purposes of the law of pledges.

III. Effectiveness of the Transaction as a Pledge. — Certain kinds of instruments represent obligations sufficiently that a delivery of them pledges the obligations. This was true of the common law specialty or sealed instrument; it is true of the commercial specialty or negotiable instrument. The idea of negotiability has now been extended to documents of title such as warehouse receipts and order bills of lading, and at the same time the idea of embodiment of a right to money has been and is being extended to certain non-negotiable choses. Stock certificates,5 insurance policies,6 and savings bank books7 may be the subject of pledges by delivery alone. Of course, not all written instruments embody the obligation; the delivery of an ordinary written contract, even if it is a memorandum necessary under the Statute of Frauds, is not a pledge of the obligation.8

Williston proposed a rational distinction between the non-negotiable instruments which embody obligations and those which do not:9

"Certain contractual rights are embodied in instruments that are more than mere evidence of a claim and are popularly referred to and regarded as if they were themselves the obligations. To some extent the law has sanctioned this popular view, and there is a sound basis for it where by contract or custom, enforcement of a right is conditional on the surrender of the document evidencing the right. * * * The delivery of the document with donative intent transfers a right * *. This is true of the gift of a policy of insurance, a savings bank book, a non-negotiable or unindorsed bill or note of a third person, a non-negotiable bond, a certificate of stock, or lottery ticket."

This distinction has been received with favor by all the leading text authorities. Brown, Personal Property § 59; 4 Collier, Bankruptcy (14th Ed.) ¶ 70.86; 2 Glenn, Fraudulent Conveyances and Preferences (Rev.Ed.) § 526. The Restatement of Contracts § 173(b) (iv) extends this concept of embodiment still further, to any "tangible token or writing, surrender of which is required by the obligor's contract for its enforcement." The Restatement of Security is more conservative, in that it would give this quality only to "indispensable instruments," which are defined in § 1, Comment e, as follows:

"An indispensable instrument as used in the Restatement of this Subject means the formal written evidence of an interest in intangibles, so representing the intangible that the enjoyment, transfer or enforcement of the intangible depends upon possession of the instrument. If the instrument cannot be produced, the interest which it represents can be effectively asserted only by accounting for the absence of the instrument and obtaining as a substitute for it, either a duplicate or some form of court decree. Indispensable instruments include not only negotiable instruments such as promissory notes and bills of exchange, but also share certificates, bonds, interim certificates, savings bank books and insurance policies. Where the instrument is not an indispensable one, for example, a written assignment of a list of book accounts as security, the interest obtained by the assignee in the accounts is not a pledge."

Section 2, Comment b, and Illustration 7, recognize that non-negotiable indispensable instruments are not restricted to any special categories, and also recognizes a pledge interest even in a paper which might have value as evidence of a right, but is not indispensable to enforcing the right. In such a case the pledgee has a pledge interest in the paper, but not in the intangible right; such an interest is said to be in the nature of a "worrying asset." Section 8, Comment a points out that under the Uniform Warehouse Receipts Act, § 42, the Uniform Bills of Lading Act, § 33, and 49 U.S.C.A. § 112, a pledge of goods in the possession of a carrier or warehouseman may be created by delivery of a non-negotiable warehouse receipt or straight bill of lading to the pledgee, upon notification of the carrier or warehouseman. See also Restatement, Trusts, § 163; Restatement, Restitution, § 126, Comment f.

There is a considerable number of cases which support these principles contended for by the texts and Restatements. In Herman v. Connecticut Mutual Life Insurance Co., 218 Mass. 181, 105 N.E. 450, Ann.Cas.1916A, 822, the assignee of an insurance policy who left the policy in the hands of an assignor, in reliance on fraudulent representations of the assignor, was held to have a claim inferior to that of a subsequent pledgee.10 In Talty v. Freedman's Savings & Trust Co., 93 U.S. 321, 23 L. Ed. 886, the security for a loan was a warrant of the City of Washington, D. C., certifying approval of the borrower's claim against the city. The Supreme Court recognized the lender's interest in this paper, presumably quite similar to the warrants in the present case, as a pledge. The case of Citizens State Bank v. O'Leary, 140 Tex. 345, 353, 167 S.W.2d 719, noted 21 Tex. L. Rev. 642, involved the pledge of a "Certificate of Membership" in an unincorporated association, which entitled the member to certain income and $3,000 upon his retirement or death and the surrender and cancellation of the certificate. The certificate also provided that any assignment without the consent of the association would be void. The court held that a pledgee without the consent of the association has a valid security interest which cut off a prior assignment and unrecorded instrument called a mortgage. In re Vardaman Shoe Co., D.C. E.D.Mo., 52 F. Supp. 562, 565, said that the rule as expressed in Restatement, Contracts § 173 "appear[s] to be sound law". The case of In re Richards, D.C. S.D.Cal., 108 F. Supp. 259, discussed supra in footnote 8, supports our view also, although in our opinion it is incorrectly reasoned and goes much too far.

The Florida authorities are scant. The dictum in Walters & Walker v. Whitlock, 9 Fla. 86, 102, quoted supra, supports to some extent the Restatement theories. On the other hand, another old case, Johnston v. Allen, 22 Fla. 224, 1 Am. St. Rep. 108, tends to the contrary. There the acceptor of a non-negotiable draft paid the payee without demanding delivery thereof, and without notice that previously the payee had transferred the draft to a third person. It was held that the third person could not recover from the acceptor. But that case is not strong authority, since it does not appear that the agreement between the acceptor and the payee was that the draft had to be surrendered to the acceptor to obtain payment. In other words, that draft might simply not have been an indispensable instrument, by the terms of the agreement creating it.11 (It seems obvious enough from the record in the present case that the warrants were "indispensable instruments," even though that was not stipulated; otherwise there would be little point in the Receiver's attemping to obain an order for Landy to turn them over; and see 31 U.S.C.A. § 528.)

The very fact that the Florida legislature excluded from accounts receivable obligations "represented by" non-negotiable instruments, recognizes the fact that some obligations may be embodied in such instruments. We do not see any compelling reason to limit this embodiment to insurance policies or bonds, but on the contrary think that the better authorities, and certainly the greater number, require us to hold that the possession of the warrants by Landy in the instant case was a pledge of the claim against the Government, a perfected security interest, and was expressly excluded from the statutory requirement of filing of assignments of accounts receivable.

But it does not follow from our holding that Landy's pledge was perfected, that it was not a voidable preference. By the terms of § 60 of the Bankruptcy Act, 11 U.S.C.A. § 96, such a perfected transfer is a preference if it was to secure an antecedent debt, made while the debtor was insolvent and within four months of bankruptcy, giving the transferee a greater percentage of his debt than some other creditor of the same class; and the preference is voidable if the creditor receiving it or his agent acting with reference thereto has, at the time the transfer is made, reasonable cause to believe that the debtor is insolvent. It is clear from the record that the pledge was not a lien or fraudulent transfer under 11 U.S.C.A. § 107, but the record does not provide a sufficient factual basis for us to decide whether or not there was a voidable preference under 11 U.S.C.A. § 96. The record is silent as to when Landy made the loan, as to when the warrants were delivered,12 as to whether Continental was then insolvent, and as to whether, if so, Landy had reasonable cause to believe that Continental was then insolvent.

While this court has the power to reverse the judgment of the trial court with directions to enter a judgment for the other party, because of the failure of the receiver to prove the essential facts to support the trial court's judgment,13 we consider this to be a case in which we should remand for further proceedings, so that these essential facts may be established if they exist.14

Reversed and remanded for further proceedings in accordance with this opinion.