French Lumber Co. v. Commercial Realty & Finance Co.

• Decision Date: 15 January 1964
• Citation: 195 N.E.2d 507,346 Mass. 716
• Parties: , 2 UCC Rep.Serv. 3 The FRENCH LUMBER CO., Inc., et al. v. COMMERCIAL REALTY & FINANCE CO., Inc., et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 507

195 N.E.2d 507

346 Mass. 716, 2 UCC Rep.Serv. 3

The FRENCH LUMBER CO., Inc., et al. v. COMMERCIAL REALTY & FINANCE CO., Inc., et al.

Supreme Judicial Court of Massachusetts, Worcester.

Argued Dec. 3, 1963.

Decided Jan. 15, 1964.

Gerald J. Helfenbein, Worcester, for Commercial Realty & Finance Co., inc.

Gerald E. Norman, Worcester, for Associates Discount Corporation, submitted a brief.

No argument nor brief for plaintiff.

Before WILKINS, C. J., and SPALDING, WHITTEMORE, CUTTER, and SPIEGEL, JJ.

SPALDING, Justice.

This bill in equity seeks to determine the ownership of certain funds derived from the sale of an automobile at a public auction.

The judge made findings of the material facts. The findings and evidence establish these facts: On February 9, 1959, The French Lumber Co., Inc. (French), purchased a 1959 Cadillac automobile and financed this purchase through the Ware Trust Company (Ware). French received $4,600 which together with a finance charge of $460 resulted in a total indebtedness by it to Ware in the amount of $5,060 which was to be repaid in twenty-three successive monthly instalments of $207 each. 'French entered into a Uniform Commercial Code security agreement as security for its note,' and this agreement was duly recorded.

On July 10, 1959, French pledged its existing equity in the Cadillac to the defendant Commercial Realty and Finance Co., Inc. (Commercial), as collateral security for funds advanced by Commercial. Commercial's security interest was duly recorded. The note to Commercial was in the sum of $8,040 and was payable in sixty monthly instalments of $134. In addition to the equity in the Cadillac this note was secured by a real estate mortgage, a chattel mortgage and assignments of life insurance. The note was signed by French, Arthur T. Winters and Charles W. Proctor.

French failed to make payments under its agreement with Ware and in the latter part of July, 1959, Ware turned over the French chattel mortgage and note to its attorney, Mr. Schlosstein, for the purpose of foreclosure. Arrangements to refinance the mortgage having come to naught, Mr. Schlosstein ordered repossession of the Cadillac on August 15, 1959. In September, 1959, Winters and Proctor on behalf of French conferred with Associates Discount Corporation (Associates) about refinancing the Cadillac then in Ware's possession. As a result of these negotiations Winters and Proctor entered into a security agreement with Associates, which was duly recorded, covering the refinancing of the Cadillac for the total amount of $5,022. Upon receiving a note in this amount signed by Winters and Proctor, Associates issued its check in the sum of $4,256 payable to Ware, Winters, and Proctor. This check was turned over by Winters to Mr. Schlosstein on September 4, 1959, and he made a notation on the French note that it was paid in full. Subsequently the Ware security agreement and discharge were sent to Associates. On the check given by Associates was a notation over the indorsements of Winters, Proctor, and Ware that it was in payment in full for the Cadillac.

On August 30, 1960, Associates repossessed the Cadillac because of defaults in payments. A public auction followed and the present controversy has to do with the ownership of the proceeds ($3,200) of the foreclosure sale. Commercial asserts that it is entitled to the proceeds. Associates asserts that it subrogated to the rights of Ware and is therefore entitled to the proceeds. After finding the foregoing facts the judge concluded: 'There was nothing to indicate that French, Winters or Proctor ever informed Associates that Commercial held any security interest in the Cadillac over and above the interest held by * * * [Ware]. I infer from the evidence that Associates had no knowledge of this situation. It is incredible that Associates would not have taken appropriate protective steps by way of an assignment from the bank. * * * If the assumption is made that Associates was negligent in failing to check the records, this negligent act will not necessarily bar Associates from obtaining the relief it seeks through subrogation. Such negligence was as to its own interests and did not affect prejudicially the interests of Commercial. * * * There has been no change of position by Commercial. It is left exactly in the position it originally was in. It had a claim known by it to be subordinated to * * * [Ware] * * *. [Ware] was paid by Associates. If Associates had taken an assignment from...