Chemical Bank v. Miller Yacht Sales

• Decision Date: 29 February 1980
• Citation: 413 A.2d 619,173 N.J.Super. 90
• Parties: , 28 UCC Rep.Serv. 1160 CHEMICAL BANK, Plaintiff-Appellant, v. MILLER YACHT SALES, Central Jersey Bank & Trust Company and Jean Muller,a/k/a Lawrence Millen, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 90

173 N.J.Super. 90

413 A.2d 619, 28 UCC Rep.Serv. 1160

CHEMICAL BANK, Plaintiff-Appellant, v. MILLER YACHT SALES, Central Jersey Bank & Trust Company and Jean Muller,a/k/a Lawrence Millen, Defendants-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued Jan. 31, 1980.

Decided Feb. 29, 1980.

Elliot Scher, Millburn, for plaintiff-appellant (Benenson & Scher, Millburn, attorneys).

James F. Sullivan, Bloomfield, for defendant-respondent Miller Yacht Sales (Robert F. Colquhoun, Bloomfield, attorney).

Craig W. McKeown, Red Bank, for defendant-respondent Central Jersey Bank & Trust Co. (McOmber & McOmber, Red Bank, attorneys).

Before Judges FRITZ, KOLE and LANE.

The opinion of the court was delivered by

KOLE, J. A. D.

Jean Muller bought in New York a 1975 32-foot Luhrs motorboat (Luhrs) for a cash sales price of $29,000, which was financed by Chemical Bank (Chemical). The retail installment contract-security agreement was assigned to Chemical on June 15, 1976. Within ten days thereafter and after receipt of the boat by Muller, Chemical filed two financing statements, one in the Nassau County Clerk's Office, New York, since the boat was to be stored in Nassau County, and one in the New York City Registrar's Office, New York, as Muller lived in New York City. Neither of these financing statements was signed by Muller. In the security agreement he did not give Chemical express authorization to file them without his signature.

A salesman from Miller Yacht Sales (Sales), of New Jersey, was approached at the New York boat show in January 1977 by Jean Muller, who represented himself to be Lawrence J. Millen. Millen wanted to buy a 36-foot Marine Trader motorboat (Marine Trader) from Sales. Negotiations continued for several months.

On August 26, 1977 Sales sold in New Jersey the Marine Trader to Millen for a cash price of $47,500. Millen gave a cash down-payment of $2,000 and was given a trade-in allowance of $22,500 on the Luhrs. Central Jersey Bank & Trust Company (Jersey Bank) financed the balance of the purchase price and was assigned the retail installment contract as security.

Sales took possession of the Luhrs in New Jersey by a bill of sale dated August 26, 1977 and resold it to someone in Florida on October 3, 1977 for $17,000.

In August 1977 Jean Muller defaulted on his payments to Chemical. Chemical claims that the balance due under its financing arrangement is $34,474.68. In letters of November 4, 1977 to Sales and Jersey Bank, Chemical advised that this amount was the "gross balance" due. However in a letter of November 15, 1977 to Muller, the debtor, Chemical informed him that the "entire net balance of $21,976.11 is now due and payable on or before November 22, 1977."

Chemical notified Sales of its security interest in the Luhrs by telephone on November 2 or 3, 1977 and was informed of the sale of the Luhrs to a third party and the sale of the Marine Trader to Lawrence Millen. By two letters, dated November 4, 1977, Chemical informed Sales and Jersey Bank that it claimed a valid security interest in the Luhrs and demanded immediate possession of the Luhrs or full payment on its financing contract. In its letter to Jersey Bank it also referred to the Marine Trader and its awareness that the Luhrs had been used as a trade towards the Marine Trader (in which Jersey Bank had a security interest) and that Jersey Bank was about to repossess the vessel in which it had its security interest. Chemical suggested that the lines of communication remain open between the banks so that neither would suffer financial loss.

Despite Chemical's communications, Jersey Bank repossessed the Marine Trader when Millen defaulted under the terms of its security agreement and sold it at public sale in December 1977. Efforts to locate Lawrence J. Millen, a/k/a Jean Muller, were unsuccessful.

After trial the judge denied Chemical any relief by way of damages against Sales or Jersey Bank. He found that under the Uniform Commercial Code (UCC) Chemical had a valid perfected security interest in the Luhrs without the filing of a financing statement, that was superior to and valid as against any security or other interest that Sales had therein. He found, further, that Chemical could not recover conversion damages against Sales or Jersey Bank "independent of its rights under Article Nine of the Uniform Commercial Code." He determined that since Sales no longer had the Luhrs in its possession, the fact that it sold the Luhrs did not give rise to a claim against it for conversion of the Luhrs under Article Nine; but rather, the Marine Trader should be considered the proceeds of the disposition of the Luhrs. He held that Chemical's financing statements did not give it a perfected security interest in the Marine Trader the proceeds of the Luhrs and, accordingly, its interest was subordinate under Article Nine to Jersey Bank's perfected purchase money security interest in that boat. He asserted that those statements wrongfully indicated that they were authorized to be filed without the debtor's signature thereon. As a result Chemical was denied a money judgment in conversion against both Sales and Jersey Bank but Chemical was declared to have a valid superior interest in the Luhrs as against the interest of Sales therein. Chemical appeals from the ensuing judgment. ¹

Chemical argues that it is entitled to damages from Sales for Sales' conversion of the Luhrs boat and damages from Jersey Bank for its conversion of the proceeds of the Luhrs boat, the Marine Trader.

Except as otherwise indicated below, the rights of the parties here are governed by the law of New York where the security agreement relating to the Luhrs was made and where the Luhrs was then located. N.J.S.A. 12A:9-103(3); IAC, Ltd. v. Princeton Porsche-Audi, 75 N.J. 379, 382 A.2d 1125 (1978); Royal Store Fixture Co. v. N. J. Butter Co., 114 N.J.Super. 263, 276 A.2d 153 (App.Div.1971).

I

As used hereafter the New York UCC (McKinney) will be referred to as NYUCC. Unless otherwise indicated, all references to provisions of § 9 will relate to NYUCC.

We hereafter hold that the Luhrs is consumer goods and that, accordingly, a financing statement was not required to be filed to perfect Chemical's purchase money security interest therein. § 9-302(1)(d). We note that § 9-302(1)(d), mandating filing of a financing statement to perfect a security interest in a motor vehicle required to be licensed or registered, does not apply to boats. See, N. Y. Veh. and Traf. Law (McKinney), Art. 48, § 2251(6); Art. 46, §§ 2104, 2101(n); chapter 62A, § 159. We also note that there was no requirement that the Luhrs be registered or the security interest therein filed with the Federal Government under the Ship Mortgage Act of 1920, 46 U.S.C.A. § 921 et seq. Additionally, the evidence discloses that in fact no such registration or filing was effected as to the Luhrs. Hence, the secured transaction here involved is subject to § 9 of NYUCC. See, § 9-104(a); Kripke, Practice Commentary to § 9-104, par. 2; R. C. Craig Ltd. v. Ships of the Sea Inc., 401 F.Supp. 1051, 1056-1058 (D.C.Ga.1975).

II The Luhrs

Generally, one who exercises unauthorized acts of dominion over the property of another inconsistent with or to the exclusion of the latter's rights therein is liable for conversion although he acted in good faith and in ignorance of the rights of the owner. McGlynn v. Schultz, 90 N.J.Super. 505, 526, 218 A.2d 408 (Ch.Div.1966), aff'd 95 N.J.Super. 412, 231 A.2d 386 (App.Div.1967).

Damages for conversion (as defined above) of secured property may be awarded under § 9 where it is found that at the time of the claimed conversion the secured party's right in the property involved is a perfected security interest and there has been a default by the debtor that gives the secured party the right to take possession of that property. See § 9-503; First Nat'l Bank of Highland v. Merchant's Mut. Ins. Co., 89 Misc.2d 771, 392 N.Y.S.2d 836 (Sup.Ct.1977), aff'd 65 App.Div.2d 59, 410 N.Y.S.2d 679 (App.Div.1978). See also, IAC, Ltd. v. Princeton Porsche-Audi, supra, 75 N.J. at 382-390, 382 A.2d 1125 and 147 N.J.Super. 212, 214, 371 A.2d 84 (App.Div.1977); First Nat'l Bank of Bay Shore v. Stamper, 93 N.J.Super. 150, 225 A.2d 162 (Law Div.1966); Royal Store Fixture Co. v. N. J. Butter Co., supra; Mammoth Cave Prod. Credit Ass'n v. Oldham, 569 S.W.2d 833, 837 (Tenn.Ct.App.1977). Cf. Mudge v. Sher- Mart Mfg. Co., 132 N.J.Super. 517, 522, 334 A.2d 357 (App.Div.1975).

The assignment of the retail installment contract relating to the Luhrs to Chemical did not affect the validity of the security interest therein or its status. If such interest was perfected at the time of the assignment, it would remain perfected. § 9-303; § 9-302(2).

It is clear that Chemical, which advanced money for the purchase of the Luhrs, had a perfected purchase money security interest therein. § 9-107(a). The Luhrs fits the description of "consumer goods," for it was "bought for use primarily for personal, family or household purposes." § 9-109(1). The retail installment contract indicated that it was bought for "pleasure," and the trial judge properly found that Muller bought it for personal rather than business use. A financing statement need not be filed to perfect a purchase money security interest in consumer goods such as the Luhrs. § 9-302(1)(d). Nevertheless, Chemical did in fact file financing statements.

Chemical's perfected security interest survived the transfer of the Luhrs by the debtor to Sales unless another provision of NYUCC permits the transferee Sales to take free of that interest. If there is no such other provision, such interest continued in that collateral and in any identifiable proceeds including collections received by the debtor. § 9-306(2).

In the instant case the only provision which would deprive Chemical's perfected security interest in the Luhrs of its priority over...