Hyland v. Anchor Finance Co., Inc.
| Decision Date | 04 January 1977 |
| Citation | 369 A.2d 12,146 N.J.Super. 102 |
| Parties | William F. HYLAND, Attorney General of New Jersey, and James McLelland Smith, Chief of the Bureau of Securities of the State of New Jersey, Plaintiffs, Farmers Bank of the State of Delaware, Intervenor-Appellant, v. ANCHOR FINANCE COMPANY, INC., a New Jersey corporation, and William J. Valyo, Defendants, and Gordon C. Strauss, Statutory Receiver of Anchor Finance Company, Inc., Respondent. |
| Court | New Jersey Superior Court — Appellate Division |
Frederic J. Schragger, Trenton, for appellant Farmers Bank of the State of Del. (Schragger, Schragger & Lavine, Trenton, attorneys).
Leon Robinson, Trenton, for respondent Gordon C. Strauss, Statutory Receiver of Anchor Finance Co., Inc. (Teich, Groh & Robinson, Trenton, attorneys; Arthur Teich, Trenton, on the brief).
Before Judges CRANE, MICHELS and LEONARD.
The opinion of the court was delivered by
MICHELS, J.A.D.
Intervenor Farmers Bank of the State of Delaware (Farmers Bank) appeals from an order of the Chancery Division denyings its motion to compel Gordon C. Strauss, the statutory receiver of Anchor Finance Co., Inc. (receiver) to turn over to it all of the accounts receivable of defendant Anchor Finance Co., Inc. (Anchor).
The pertinent facts are as follows: On April 16, 1974 Farmers Bank loaned Anchor $100,000. As security for this loan, Anchor pledged all of the present and future accounts, contract rights, open accounts receivable, book debts, notes, drafts, acceptances, instruments, chattel paper and other choses in action, and returned goods, and all products and proceeds thereof, now or hereinafter owned or held by or payable to it. Essentially, Anchor pledged its accounts receivable. A security agreement to this effect was signed by the parties and a financing statement required by the Uniform Commercial Code was filed with the Secretary of State of New Jersey. Under the terms of the security agreement, Farmers Bank had the right, upon default by Anchor, to notify all account debtors and to take control of the proceeds of the accounts. Additionally, the agreement contained an acceleration clause, and, under the terms of that clause, Farmers Bank reserved the right to enforce payment of the loan without notice to the borrower and to exercise all rights under the Uniform Commercial Code. On July 10, 1974, a further loan of $75,000 was made under the security agreement and on October 31, 1974, Anchor borrowed an additional $11,167.07. The total loan outstanding was $186,187, without computation of interest. At the time, the face value of Anchor's outstanding receivables was in excess of $1,000,000.
In December 1974 plaintiffs William F. Hyland, Attorney General of New Jersey, and James McLelland Smith, Chief of the Bureau of Securities of the State, sought and obtained the issuance of an order to show cause requiring Anchor and defendant William J. Valyo, president of Anchor, to show why the further operation of Anchor should not be enjoined and a receiver appointed. This action was commenced under N.J.S.A. 49:3--69. Section (d) of that statute, in pertinent part, provides:
(d) When injunctive relief is granted as provided for in paragraph (b) against a corporation, partnership, company, association or trust, the court may appoint a receiver and may restrain the corporation, its officers, directors, stockholders, and agents, the partnership, company or association, its officers, members and agents, and the trust, its grantors, trustees, officers, cestuis que trustent and agents from exercising any of its privileges or franchises, and in the case of a trust from executing the trust, and in all cases from collecting or receiving any debts, or paying out, selling, assigning or transferring any of its estate, moneys, funds, lands, tenements or effects except to the receiver appointed by the court until the court shall otherwise order.
Upon the appointment of the receiver, all the real and personal property of the corporation, partnership, company, association or trust, and its franchises, rights, privileges and effects shall forthwith vest in him and the corporation, partnership, company, association or trust shall be divested of the title thereto.
The receiver shall settle the estate and distribute the assets, and have all the powers and duties conferred upon receivers by the provisions of Title 14, Corporations, General, so far as the provisions thereof are applicable.
Following a plenary hearing the Chancery Division entered an order on December 20, 1974 which enjoined future activity by Anchor and Valyo and provided for the appointment of the receiver. Apparently at that time Anchor was not in default of its loan from Farmers Bank. Thereafter, in January 1975, Farmers Bank, after notice to all creditors of Anchor, moved in the Chancery Court for status as an intervenor. Additionally, it sought to have its lien established and its priority set and sought, alternatively, either to redeem all accounts subject to the financing statement or to have all funds derived from the liquidation of those accounts turned over to it to satisfy the outstanding loan balance. Following argument the trial judge held that the lien of the Farmers Bank was valid and properly secured in the amount of $195,820.27. He also held the lien to be the number one secured obligation of Anchor as to all creditors upon whom the service of the order to show cause was effected. Interest on the payment of said sum from the date the receiver was appointed was reserved pending final distribution of all assets coming into the hands of the receiver. No appeal has been taken from this order.
Sometime thereafter, Farmers Bank moved to obtain immediate possession of the accounts receivable that constituted security for its loan. Farmers Bank claimed that although the face value of those accounts was high, the actual value of the accounts receivable was far less than the value of the debt secured thereby. It contended, therefore, that any assets realized by the sale of these accounts would accrue solely to its benefit and not the benefit of the other creditors. In this situation it did not want to be saddled with the expensive costs of liquidation by the receiver and sought immediate possession of the accounts receivable in order to liquidate them itself. Judge Lenox denied the motion, holding that even though Farmers Bank was a secured creditor with priority over other creditors, its claim did not have priority over or come ahead of the expenses of the receivership, and Farmers Bank was not entitled to immediate distribution of the assets of Anchor.
Farmers Bank then moved for reconsideration of the motion alleging new evidence. The evidence, an affidavit of Clifford T. Duck, an assistant treasurer of Farmers Bank, merely confirmed the prior claim that the accounts receivable were of minimal value. The affidavit contained a report of (1) a review of the Anchor accounts receivable by American Finance Management Corporation, a large finance company, which indicated that those accounts receivable having a total face value of $888,100 were only worth approximately $11,301, and (2) a review of those accounts by Oxford First Corp., another finance company, which indicated that the estimated maximum value of all of the accounts receivable in November 1975 was in the range of five to ten percent per dollar. 1 The trial judge denied the motion, and Farmers Bank appeals.
We are satisfied from our study of the record that the trial judge properly denied Farmers Bank's motion to obtain immediate possession of the accounts receivable and affirm the order of the Chancery Division essentially for the reasons expressed by Judge Lenox in his oral opinion of October 17, 1975.
In New Jersey, priorities in the distribution of the assets of an estate placed in receivership are governed by N.J.S.A. 14A:14--20 and 21, which appear to apply whether the receivership action was brought under Title 14A or under some other statutory provision such, as here, N.J.S.A. 49:3--69. N.J.S.A. 14A:14--20, which empowers the court to award receivership costs, provides:
In any...
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