Holly Knitwear, Inc., Matter of

CourtNew Jersey Superior Court – Appellate Division
Writing for the CourtBOTTER
Citation356 A.2d 405,140 N.J.Super. 375
Parties, 37 A.F.T.R.2d 76-1332, 76-1 USTC P 9437 In the Matter of the General Assignment for the Benefit of Creditors of HOLLY KNITWEAR, INC., Assignor. Feldwin Realty Co., Appellant, Textile Financial Corp., Respondent, Cross-Appellant, United States of America, Respondent.
Decision Date09 March 1976

Page 375

140 N.J.Super. 375
356 A.2d 405, 37 A.F.T.R.2d 76-1332,
76-1 USTC P 9437
In the Matter of the General Assignment for the Benefit of
Creditors of HOLLY KNITWEAR, INC., Assignor.
Feldwin Realty Co., Appellant,
Textile Financial Corp., Respondent, Cross-Appellant,
United States of America, Respondent.
Superior Court of New Jersey,
Appellate Division.
Argued Oct. 15, 1975.
Decided March 9, 1976.

[356 A.2d 407]

Page 378

Jerome S. Lieb, Morristown, for appellant Feldwin Realty Co. (Lieb, Teich & Berlin, Morristown, attorneys).

Harold M. Cohen, Newark, for respondent, cross-appellant Textile Financial Corp. (Kleinberg, Moroney, Masterson & Schachter, Newark, attorneys).

Karl Schmeidler, Washington, D.C., for respondent U.S. (Jonathan L. Goldstein, U.S. Atty., attorney, George Kandravy, Asst. U.S. Atty., of counsel, Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews, Jr., Crombie, J. D. Garrett and Karl Schmeidler, attorneys, Tax Div., Dept. of Justice, of counsel and on the brief).

Before Judges KOLOVSKY, BISCHOFF and BOTTER.

Page 379

The opinion of the court was delivered by

BOTTER, J.A.D.

Holly Knitwear, Inc. made an assignment for the benefit of creditors on December 16, 1970. N.J.S.A. 2A:19--1 Et seq.; R. 4:54; see In re Xaviers, Inc., 66 N.J.Super. 561, 169 A.2d 708 (App.Div.1961). Its assets were sold and the trial court was called upon to determine the priority of claims against the fund. The principal issue on this appeal concerns the priority of liens held by United States of America (United States), a secured creditor, Textile Financial Corp. (Textile), and the assignor's landlord, Feldwin Realty Co. (Feldwin). Under Federal law, the secured creditor's lien concededly had priority over the Federal Government's claim under 31 U.S.C.A. § 191 (United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954); Exchange Bank & Trust Co. v. Tubbs Mfg. Co., 246 F.2d 141, 143 (5 Cir. 1957), Cert. den. 355 U.S. 868, 78 S.Ct. 118, 2 L.Ed.2d 75 (1957)), which in turn had priority over the landlord's lien (United States v. Waddill, Holland & Flinn, Inc., 323 U.S. 353, 65 S.Ct. 304, 89 L.Ed. 294 (1945); United States v. Saidman, 97 U.S.App.D.C. 344, 231 F.2d 503 (D.C.Cir. 1956)), but under State law the landlord's lien had priority over the lien of the secured creditor. N.J.S.A. 2A:44--166. The funds were insufficient to pay these claims in full. The issue raised has been termed the circularity of priorities. See Plumb, 'Federal Liens and Priorities--Agenda for the Next Decade,' 77 Yale L.J. 228, 231 (1967); Note, 'Circuity of Liens--A Proposed Solution,' 38 Colum.L.Rev. 1267 (1938); Benson, 'Circuity of Lien--A Problem in Priorities,' 19 Minn.L.Rev. 139 (1935). For cases in New Jersey dealing with problems arising solely under state law, see Hoag v. Sayre, 33 N.J.Eq. 552 (E. & A.1881); Jarecki v. Manville Bakery, Inc., 7 N.J.Super. 387, 71 A.2d 228 (Ch.Div.1950); Vanderhoff v. Wasco, 109 N.J.Eq. 463, 158 A. 323 (Ch.1932); Fidelity Union Title & Mtg. Guar. Co. v. Magnifico, 106 N.J.Eq. 559, 151 A. 499 (Ch.1930)

Page 380

; Meeker v. Warren, 66 N.J.Eq. 146, 57 A. 421 (Ch.1904); Andrus v. Burke, 61 N.J.Eq. 297, 48 A. 228 (Ch.1901); Clement v. Kaighn, 15 N.J.Eq. 47 (Ch.1862).

The facts are set forth in the trial court's opinion, reported at 115 N.J.Super. 564, 280 A.2d 504, which deals with some issues not presented on this appeal. Claims have been presented on behalf of:

(a) Two creditors, Jonathan Logan, Inc. (Logan) and Northern Financial Corp. (Northern), holders of purchase[356 A.2d 408] money security interests on specific items of personal property;

(b) United States, for social security and withholding taxes, totaling approximately $40,000;

(c) Textile, for approximately $24,000 plus attorneys' fees, for the balance due on loans made pursuant to an agreement secured by a lien on all assets, including after-acquired property;

(d) Feldwin, for approximately six months' rent due in the approximate sum of $14,000;

(e) State of New Jersey, for taxes due in the sum of $6,000, and

(f) Alleged wage-earners.

Out of the total assets of approximately $76,000 the lower court ordered payment of approximately $16,000 to Logan and Northern based upon their purchase money security priority, subject to a contribution toward administration expenses. The trial judge also determined that the alleged wage claims were not entitled to priority accorded by N.J.S.A. 2A:19--30 because the claims were payable to a trust fund for health, welfare and recreation benefits and can be claimed only by the union, not the wage-earners. Finally, the court ordered the remaining $60,000 (all figures used are approximate and are rounded off for convenience), less administrative expenses ($24,000), which included legal fees, or a balance of $36,000 distributed, so far as relevant, as follows:

Page 381

1. To Textile, $24,000, less $14,000 claimed by Feldwin (the landlord's lien being superior under state law), which $14,000 is to be designated a special fund, leaving $10,000 for Textile, against which an assessment ($1500) for a portion of administration expenses was charged;

2. To United States, the special fund of $14,000, less $2100 for its share of administrative expenses, United States having priority over the landlord's lien under federal law;

3. To United States, the balance of funds available.

Since the claims of Textile and United States exhausted the fund as distributed by the trial court, Feldwin did not receive any payment, nor did other preferred creditors or general creditors. Feldwin appealed, Textile cross-appealed and United States responded to protect its position. No other creditors appealed or otherwise participated on this appeal. No attack is made upon the distribution to Logan and Northern. The dispute before us concerns only the distribution among United States, Textile and Feldwin of approximately $36,000 toward their claims.

Feldwin contends that Textile's claim should be set aside first, since it has priority under federal law over United States' claim, the balance to be paid to United...

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7 practice notes
  • Trustees of Clients' Sec. Fund of Bar of New Jersey v. Yucht
    • United States
    • Superior Court of New Jersey
    • June 30, 1989
    ...notice. Counsel for the IRS cited In re Holly Knitwear, Inc. v. Solomon, 115 N.J.Super. 564, 280 A.2d 504 (Cty.Ct.1971), mod. and aff'd 140 N.J.Super. 375, 356 A.2d 405 (App.Div.1976), and conceded that the IRS was subject to administrative expenses and perfected security interests and The ......
  • Schlussel v. Emmanuel Roth Co.
    • United States
    • New Jersey Superior Court – Appellate Division
    • February 7, 1994
    ...the lien; rather, the lien is inchoate and attaches from the date the rent becomes due and remains unpaid. In re Holly Knitwear, Inc., 140 N.J.Super. 375, 382, 356 A.2d 405 (App.Div.1976). Indeed "[i]t is not actually a lien at all, but rather a statutory right to preference in payment over......
  • Hartwell v. Hartwell Co., Inc.
    • United States
    • Superior Court of New Jersey
    • March 12, 1979
    ...the plaintiffs have first priority in the assets of Hartwell Co., Inc. up to $17,622.45. --------------- 1 In re Holly Knitwear, Inc., 140 N.J.Super. 375, 356 A.2d 405 (App.Div.1976), held that a landlord's lien arising under N.J.S.A. 2A:44-166 had priority over a secured creditor. N.J.S.A.......
  • State v. Smith
    • United States
    • New Jersey Superior Court – Appellate Division
    • April 7, 1976
    ...assumed that it was in the dresser and not plainly visible. The record does not clearly yield any indication that the dresser was within [356 A.2d 405] the 'immediate control' of defendant. United States v. Manarite, supra. Nevertheless, though it was not shown that the dresser, or for that......
  • Request a trial to view additional results
7 cases
  • Trustees of Clients' Sec. Fund of Bar of New Jersey v. Yucht
    • United States
    • Superior Court of New Jersey
    • June 30, 1989
    ...notice. Counsel for the IRS cited In re Holly Knitwear, Inc. v. Solomon, 115 N.J.Super. 564, 280 A.2d 504 (Cty.Ct.1971), mod. and aff'd 140 N.J.Super. 375, 356 A.2d 405 (App.Div.1976), and conceded that the IRS was subject to administrative expenses and perfected security interests and The ......
  • Schlussel v. Emmanuel Roth Co.
    • United States
    • New Jersey Superior Court – Appellate Division
    • February 7, 1994
    ...the lien; rather, the lien is inchoate and attaches from the date the rent becomes due and remains unpaid. In re Holly Knitwear, Inc., 140 N.J.Super. 375, 382, 356 A.2d 405 (App.Div.1976). Indeed "[i]t is not actually a lien at all, but rather a statutory right to preference in payment over......
  • Hartwell v. Hartwell Co., Inc.
    • United States
    • Superior Court of New Jersey
    • March 12, 1979
    ...the plaintiffs have first priority in the assets of Hartwell Co., Inc. up to $17,622.45. --------------- 1 In re Holly Knitwear, Inc., 140 N.J.Super. 375, 356 A.2d 405 (App.Div.1976), held that a landlord's lien arising under N.J.S.A. 2A:44-166 had priority over a secured creditor. N.J.S.A.......
  • State v. Smith
    • United States
    • New Jersey Superior Court – Appellate Division
    • April 7, 1976
    ...assumed that it was in the dresser and not plainly visible. The record does not clearly yield any indication that the dresser was within [356 A.2d 405] the 'immediate control' of defendant. United States v. Manarite, supra. Nevertheless, though it was not shown that the dresser, or for that......
  • Request a trial to view additional results

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