Cherno v. Bank of Babylon

Citation54 Misc.2d 277,282 N.Y.S.2d 114
Parties, 4 UCC Rep.Serv. 505 Isidore CHERNO, as Assignee for the Benefit of Creditors of Elwood Auto Parts, Inc., Plaintiff, v. BANK OF BABYLON, Defendant.
Decision Date07 July 1967
CourtUnited States State Supreme Court (New York)
MEMORANDUM

BERNARD S. MEYER, Justice.

Plaintiff as assignee for the benefit of creditors of Elwood Auto Parts, Inc., sues, by leave of court, for the conversion by defendant bank of assets of the assignor. The complaint sets forth three causes of action: the first is for the conversion; the second, for punitive damages; and the third, for violation of Penal Law, § 1433. Plaintiff moves for summary judgment and for the purposes of this motion concedes the validity of the security agreement held by the bank. That agreement gave the bank the right in the event of default '(a) to declare the Note and all Obligations due and payable * * * without notice or demand; (b) to enter the * * * premises * * * where any of the Collateral may be located and take and carry away the same * * * with or without legal process'. The undisputed facts are that the assignor was in default under the security agreement on May 9, 1966, that the assignment was made on May 26, 1966 and filed on May 27, 1966 and an order made on May, 31, 1966, by the Supreme Court, Suffolk County, authorizing the assignee, upon filing bond and after notice to creditors, to sell the assignor's physical assets, that on June 2, 1966 an auctioneer employed by the assignee visited the bank and informed the bank's senior vice-president and comptroller that the assignment had been made (EBT, pp. 39, 41), that up to that point the bank had taken no steps to seize the collateral other than attempting to contact the borrower (EBT, pp. 41--42), that on June 2, 1966 the key to the premises leased by the assignor was in the assignee's possession and on the afternoon of that day was used by one of the auctioneer's employees to let the bank's senior vice-president into the premises so that he could view the assets in question, that on June 3, 1966 the bank's employees (EBT, pp. 49, 54, 57) entered the premises of the assignor at the direction of the senior vice-president (EBT, p. 49) and removed the assets in question (EBT, pp. 46--47), that admittance of the bank's employees to the premises was obtained by means of a key which was not received from anyone of the assignor's firm, the assignee, auctioneer or landlord (EBT, pp. 62--63) but was obtained from a representative of a locksmith (Kozlowski affidavit of March 17, 1967), and that the assets seized by the bank were thereafter sold by the bank (EBT, p. 61).

Since plaintiff has presented no evidence of 'actual physical damages' to the assets, Penal Law, § 1433 does not apply, Polychrome Corp. v. Lithotech Corp., 4 A.D.2d 968, 969, 168 N.Y.S.2d 346, 347. In the exercise of the discretion granted by CPLR 3212(b), defendant is, therefore, granted summary judgment dismissing the third cause of action. On the first and second causes of action, plaintiff's motion for summary judgment is denied for the reasons hereafter set forth, but since plaintiff's concession as to the validity of the security agreement was for the purposes of its own motion only, and there is, in view of the blanks in the security agreement, a triable issue concerning its validity, defendant's request for summary judgment on these causes of action is also denied.

The contention that, assuming the validity of the security agreement, the action of the bank's employees nevertheless constituted a conversion is predicated on the propositions that (1) the assets were in custodia legis and (2) the unauthorized entry by the bank's employees constituted a breach of the peace. Neither contention withstands analysis.

While it is true that Debtor and Creditor Law, § 14 makes it 'the duty of the assignee to collect and reduce to money the property of the estate', and that such property is in custodia legis, Matter of John C. Creveling & Son Corp., 259 App.Div. 351, 19 N.Y.S.2d 378, aff'd 283 N.Y. 760, 28 N.E.2d 975; Mirzoeff, Inc. v. Foster & Chadwick Co., 36 Misc.2d 860, 233 N.Y.S.2d 735; Florence Trading Corp. v. Rosenberg, 2 Cir., 128 F.2d 557; see Matter of Sheldon, 173 N.Y. 287, 65 N.E. 1096, it is also true that assets constituting security are not part of 'the property of the estate' unless and until the court, upon petition by either the secured creditor or the assignee brought pursuant to Debtor and Creditor Law, § 35, determines that valuation by creditor's sale 'is impracticable or would cause undue delay' and orders sale of the assets by the assignee, Matter of Oakdale Woods (Goldweber), 24 Misc.2d 141, 203 N.Y.S.2d 794; see Matter of Geoghan (N.Y. Credit Men's Adjust. Bur.), 200 Misc. 945, 107 N.Y.S.2d 593; Matter of Thelmco, Inc., 177 Misc. 484, 31 N.Y.S.2d 161; 21 Carmody Wait, Cyc. of New York Practice 638. This is because, though Debtor and Creditor Law, § 20 gives the court 'full jurisdiction to do all and every act relating to the assigned estate, the assignees, assignors and creditors', it is clear from §§ 15(8), 30, 34 and 35 that, until a section 35 order is made, secured property is not part of the assigned estate. Thus, § 15(8) authorizes the court 'To allow secured creditors such sum only as to the court seems to be owing over and above the value of their securities', section 34 directs that '(t)he value of assets constituting the security may be determined by one of the following methods By the secured creditor: * * * (2) By creditor's sale. When the asset constituting the security is something other than an obligation for the payment of money, The secured creditor may determine its value by creditor's sale,', section 30, subd. (e) defines 'Creditor's sale' to include 'any sale effected by the secured creditor by judicial process or otherwise Under the terms of his contract or the applicable law For the purpose of realizing upon his security', and section 35(3) authorizes the court to order a liquidator's sale only 'upon petition by either the secured creditor or the liquidator' and 'where valuation under the provisions of section thirty-four is impracticable or would cause undue delay' (emphasis supplied). The statutory scheme contemplates sale by the creditor rather than the assignee. Until a section 35(3) order has been made, assets constituting security are not part of the assigned estate, and the assignee cannot 'pass to the purchaser good title, free and clear of all liens of the secured creditor.' No such order was obtained here; the assignee, therefore, had no more right to possession of the assets in question than did his assignor, and since the underlying debt was in default at the time the assignment was made the assignor had, under the security agreement, no right as against the bank except to receive any surplus there might be after 'creditor's sale', see Matter of Office Design v. Halpert, 36 Misc.2d 1081, 233 N.Y.S.2d 615; City of New York v. United States, 2 Cir., 283 F.2d 829. While at first blush the result thus reached may appear inconsistent with Florence Trading Corporation v. Rosenberg, 128 F.2d 557, supra, and In re Yale Express System, Inc., D.C., 250 F.Supp. 249, both are distinguishable; the Rosenberg case because at the time of the events with which it was concerned the Uniform Act which became Article 2--A of the Debtor and Creditor Law was not part of the statute law of New York; the Yale Express case, because it concerns the Federal Bankruptcy Act and a chattel mortgage that matured After the Trustee's rights in a Chapter X proceeding had vested.

But, argues the assignee, under the default provisions of the security agreement, rights and remedies are given to the bank only 'to the extent permitted by applicable law * * *' and § 9--503 of the Uniform Commercial Code provides that 'In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace * * *'. The unauthorized entry by the bank's employees, it is said, was a breach of the...

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    ... ... Short, 273 Ky. 190, 115 S.W.2d 899, 900-901 (1938) (no breach of peace where garage doors are open and creditor enters and tows car away); Cherno v. Bank of Babylon, 54 Misc.2d 277, 282 N.Y.S.2d 114, 119-20 (N.Y.Sup.Ct.1967) (no breach of peace despite unauthorized entry into debtor's business ... ...
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    ... ... N.J.S.A. 12A:9--503. Repossession may be accomplished by stealth, Cherno v. Bank of Babylon, 54 Misc.2d 277, 282 N.Y.S.2d 114 (N.Y.Sup.Ct.1967), aff'd 29 A.D.2d 767, 288 N.Y.S.2d 862 (N.Y.App.Div.1968), as it was in this ... ...
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  • Kirksey v. Theilig
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    • U.S. District Court — District of Colorado
    • November 30, 1972
    ... ... William KIRKSEY, Plaintiff, ... Gene THEILIG, as agent of The East Colorado Springs National Bank and The East Colorado Springs National Bank, a Colorado corporation, Defendants ... Gerald CHASE, ... First National Bank & Trust Co. of Ravenna, 21 Ohio St.2d 25, 254 N.E.2d 683 (1970) with Cherno v. Bank of Babylon, 54 Misc. 2d 277, 282 N.Y.S.2d 114 (1967), aff'd, 29 A.D.2d 767, 288 N.Y.S.2d ... ...
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2 books & journal articles
  • Personal Property Security Interests in Washington-adoption of the 1972 Official Text of the Uniform Commercial Code Will Make a Good Law Better
    • United States
    • Seattle University School of Law Seattle University Law Review No. 3-01, September 1979
    • Invalid date
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    • University of Whashington School of Law University of Washington Law Review No. 87-2, December 2017
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