Brownstein v. Fiberonics Industries, Inc.
| Decision Date | 15 April 1970 |
| Parties | , 7 UCC Rep.Serv. 866 Steven I. BROWNSTEIN, Plaintiff, v. FIBERONICS INDUSTRIES, INC., a corporation of the State of New Jersey, Defendant. |
| Court | New Jersey Superior Court |
James Greenberg, Camden, court-appointed attorney for receiver Stanton D. Freeman. (Greenberg, Shmerelson & Greenberg, Camden, attorneys).
Richard E. Beck, Middleton, for defendants C & S Machinery Company, Inc. and Floyd A. New and E. W. Thompson, Jr., doing business as Greensboro Wood Products Co.
This is a proceeding to determine certain rights and liabilities for the receiver of an insolvent corporation.
Plaintiff, as a creditor of Fiberonics Industries, Inc., originally brought this action seeking the appointment of a receiver pursuant to N.J.S.A. 14A:14--2. The complaint was filed in this court on October 14, 1969 and a statutory receiver was appointed after a determination that Fiberonics was insolvent.
On December 17, 1969 the attorney for the receiver obtained an order to show cause why John Carpenter and Steven Skorupan, doing business as C & S Machinery Company, Inc. (hereafter C & S), and Floyd A. New and E. W. Thompson, doing business as Greensboro Wood Products Company, Inc. (hereafter Greensboro), should not have to account for certain assets that belong to the receivership.
Both C & S and Greensboro contested the order to show cause and the matter was tried in a plenary hearing.
At the hearing the following uncontroverted facts were established. On January 16, 1969 C & S, through its officers Carpenter and Skorupan, signed a contract with Fiberonics Industries, Inc. agreeing to sell certain enumerated machines and parts for $78,930. The terms of payment were that 20%, or $15,786, was payable at the signing of the contract and the balance 30 days after delivery of the completed order. Paragraph 5 of the agreement provides:
RETENTION OF TITLE. Title to above goods to remain in Seller until purchase price has been fully paid in cash. Buyer to sign notes, not in payment, but as evidence of obligation and all other papers necessary to place this contract on record, furnish such waivers, papers and security as requested, keep property fully insured; policies payable as interests appear and pay all taxes. It is expressly agreed said property shall in no event become a fixture or part of realty. If Buyer should default in any payment, attempt to sell, mortgage or remove property without Seller's written consent, or become insolvent or in any manner jeopardize Seller's interest in property, then all payments become immediately due and payable and Seller or his agent without notice or process of law, may enter our premises, make any necessary openings in building and remove property, Buyer to pay all expenses necessary, by default, in which case Seller has the option to consider all payments made as rental or liquidated damages.
C & S completed 99% Of its deliveries by May 31, 1969. Except for the $15,786 paid in January, no payments have been made to this date of the amount due under the contract.
On August 1, 1969 C & S filed a financing statement with the Secretary of State's office and the Monmouth County Clerk's office covering the machinery delivered under the contract.
On October 13, 1969 C & S repossessed all the machinery by paying the landlord $3600 of the rent due him and transporting them back to its Tennessee plant.
In February 1969, Greensboro, acting through Floyd A. New and E. W. Thompson, signed a contract with Fiberonics agreeing to sell one Rouse shaping lathe for $6,500, payable $1,300 at signing and the balance within 45 days after the delivery of the machine. A notation on the agreement indicates that the machine was delivered on March 13, 1969. Paragraph 5 of the agreement provides:
The Seller and Buyer agree that title to the machine in question is to remain with Seller until payment in full of the purchase price. In furtherance of this matter the parties agree to execute a UCC Financing Statement to be filed with the Secretary of State of New Jersey. Payment of preparation and filing of said financing statement is to be borne by Seller. Immediately upon payment in full Seller agrees to execute and deliver to Buyer the proper authority to cancel said financing statement.
On May 22, 1969 a financing statement was filed with the appropriate offices in this State. A total of $2,050 was paid on the machine. On October 13, 1969 Greensboro, in conjunction with C & S, paid the landlord $400 and removed its machine back to its North Carolina plant.
The receiver seeks to have the C & S and Greensboro security interests set aside and the machines returned or, in the alternative, if the sellers' liens be found to be valid, then to recover Fiberonics' equity in the repossessed equipment.
Since the two liens have significant factual differences they will be examined separately, taking the C & S situation first.
N.J.S.A. 14A:14--14 provides:
(1) For the purposes of this chapter, a preference arises when
(a) a corporation which, while insolvent, and within four months of the commencement of a receivership action by or against it, transfers any property to or for the benefit of a creditor for or on account of an antecedent debt; and
(b) the effect of such transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class; and
(c) the creditor receiving or to be benefited by the transfer, or his agent acting with reference thereto, has, at the time when the transfer is made, reasonable cause to believe that the corporation is insolvent.
(4) When a preference has arisen, the receiver may recover the property or, if it has been converted, its value, from any person who has received or converted such property, except a bona fide purchaser from or lienor of the corporation's transferee for a present fair consideration. Where, however, such bona fide purchaser or lienor has given less than such value, he shall nevertheless have a lien upon such property, but only to the extent of the consideration actually given by him. When a preference is by way of lien or security title, the Superior Court may on due notice order such lien or title to be preserved for the benefit of the insolvent corporation's estate, in which event the lien or title shall pass to the receiver.
This is a new provision in New Jersey law, having been enacted in 1968. The Commissioners' comments indicate that it was derived from section 60 of the Federal Bankruptcy Act, 11 U.S.C.A. § 96.
The meaning of the statute is clear that certain transfers may be set aside by a receiver if the prerequisites of N.J.S.A. 14A:14--14(1) are met. N.J.S.A. 12A:9--302(1) requires that a financing statement be filed to perfect a security interest in this case. N.J.S.A. 12A:9--303(1) provides that the perfected security interest arose when the financing statement was filed on August 1, 1969, N.J.S.A. 14A:14--14(2)(a) states that
* * * a transfer of property other than real property shall be deemed to have been made or suffered at a time when it became so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee; * * *.
Therefore, the filing of the financing statement of August 1, 1969 was a transfer within four months of the commencement of the receivership action. The security interest would have had the effect of giving C & S a greater percentage of its debt than other unsecured creditors. Since the security interest was given for the goods previously delivered, it was for an antecedent debt. The two remaining elements necessary to create a preference are in dispute. They are whether Fiberonics was insolvent on August 1, 1969 and whether C & S had reasonable cause to believe the corporation was insolvent.
From the proofs submitted at trial the court finds that on August 1, 1969 Fiberonics was unable to pay its bills as they came due and could not obtain loans to improve its position. This means it was insolvent in the equity sense, as defined by N.J.S.A. 14A:14--1(f)(2).
The seller contends that this definition is not the one that should be used. It argues that N.J.S.A. 14A:14--14 is taken practically verbatim from ...
To continue reading
Request your trial
-
Allen v. Coates
...v. Delaware Trust Co., 360 A.2d 576 (Del.Super.1976); Moran v. Holman, 514 P.2d 817 (Alaska 1973); Brownstein v. Fiberonics Industries, Inc., 110 N.J.Super. 43, 264 A.2d 262 (1970).7 One commentator has observed an analogue to the involuntary strict foreclosure rule in the rules governing c......
-
Swanson v. May
...notice provisions relieve creditor only of obligation to dispose of property according to U.C.C. 9-504); Brownstein v. Fiberonics Indus., Inc., 110 N.J.Super. 43, 264 A.2d 262 (1970) (creditor's failure to provide notice of intent to retain pursuant to U.C.C. 9-505(2) enables receiver/debto......
-
Service Chevrolet, Inc. v. Sparks
...so unreasonable as to amount to such retention. Northern Fin. Corp. v. Chatwood Coffee Shop, Inc., supra; Brownstein v. Fiberonics Indus., Inc., 110 N.J.Super. 43, 264 A.2d 262 (1970); Bradford v. Lindsey Chevrolet, Co., 117 Ga.App. 781, 161 S.E.2d 904 (1968); National Equip. Rental, Ltd. v......
-
Vowteras v. Argo Compressor Service Corp.
...the stock purchase agreement (see Portage Insulated Pipe Co. v. Costanzo, 114 N.J.Super. 164, 275 A.2d 452; Brownstein v. Fiberonics Industries Inc., 110 N.J.Super. 43, 264 A.2d 262; Coffman v. Maryland Pub. Co., 167 Md. 275, 173 A. 248). Since it was established that the fair market value ......