In re Amity Dyeing & Finishing Company, Inc.

• Decision Date: 12 January 1962
• Parties: In the Matter of AMITY DYEING & FINISHING COMPANY INC., Bankrupt.
• Court: U.S. District Court — Southern District of New York

200 F. Supp. 823

In the Matter of AMITY DYEING & FINISHING COMPANY INC., Bankrupt.

United States District Court S. D. New York.

January 12, 1962.

Samuel Newfield, New York City, for P. R. Sales Co., reclaimants, Leopold Frankel, Paterson, N. J., of counsel.

David Haar, New York City, for trustee.

FREDERICK van PELT BRYAN, District Judge.

This is a petition to review a decision and order of the referee in bankruptcy which, in substance, denied the right of conditional vendors to reclaim machinery in the possession of the trustee which had been sold to the bankrupt under two conditional sales contracts. On July 29, 1960 the referee rendered a decision holding that the conditional sales contracts under which the machinery had been sold to the bankrupt were void as against the trustee and denying the vendors' application to reclaim the property. The reclaimants had been permitted to sell the machinery for the sum of $7,000 by leave of the court upon condition they hold the proceeds subject to court order. On September 15, 1960 the referee ordered the reclaimants to pay the proceeds of the sale to the estate. The reclaimants-petitioners for review assert that the decision and order of the referee were erroneous.

The reclaimants are a partnership doing business as P. R. Sales Company (P. R.) with their principal office in Passaic, New Jersey. They are engaged in the sale of machinery and equipment to the textile trade. The bankrupt, Amity Dyeing & Finishing Company, Inc., is a New York corporation which was engaged in finishing and dyeing textiles. Its certificate of incorporation provides that its principal place of business is in Queens County. On January 28, 1960 it was adjudicated a bankrupt in this court on a voluntary petition.

There are two conditional sales contracts involved in the present controversy. On July 25, 1957 P. R. and Amity entered into a contract for the sale of a Werner Rebeamer and appurtenances for the price of $4,600. The terms as set forth in the contract were $500 in cash on the execution of the contract, $500 on delivery of the machinery, and 18 promissory notes in the sum of $200 each, plus interest, payable monthly commencing one month from the date of delivery. At that time Amity had its plant and principal place of business in Glendale, Queens County, New York. The machinery was delivered to Amity there on or about August 15, 1957. It is conceded that the conditional sales contract was properly filed in Queens County on that day.

On February 6, 1958 P. R. and Amity entered into a second conditional sales contract for two Standard Boil-Off machines at a price of $14,000. The terms, as set forth in the contract, were $500 upon the signing of the contract and 27 promissory notes of $500 each, plus interest, payable monthly commencing May 1, 1958. The machinery was delivered to Amity at its plant in Glendale on February 15, 1958 and the conditional sales contract was properly filed in Queens County on that day.

Both conditional sales contracts required Amity to keep the machinery at its Glendale plant and not to remove it without the consent of the vendors first obtained.

In June or July of 1959 Amity, with the permission of P. R., moved all of its property and equipment, including the machinery involved here, from Glendale, Queens, to a new plant in Norwich, Connecticut, where it continued to operate. On June 26, 1959 P. R. filed the original two conditional sales contracts covering the rebeamer and the boil-off machines respectively with the Town Clerk of Norwich, under the Connecticut conditional sales statute.¹

In August of 1959 Amity found itself in financial difficulties and, after negotiations, reached an agreement with P. R. under which P. R. returned all unpaid notes it held pursuant to both contracts and Amity gave it a new series of notes dated August 1, 1959. The new notes covered the combined balance remaining due for the machinery sold under both contracts and each note was payable in monthly instalments equal to one-half of the combined amount due monthly under the old notes, plus interest. The final note of this series was due on July 1, 1961, whereas the final note on the 1957 conditional sales contract covering the rebeamer had been due in February 1959 and the final note on the boil-off machine had been due in July 1960.

With the exception of the new notes evidencing the transaction this agreement was not reduced to writing nor did P. R. file it or any notice thereof either in Norwich, Connecticut, where Amity was then carrying on its business and where the machinery was then located, or in Queens County, New York, the principal place of business specified in Amity's charter, where Amity's plant had been previously located and where the machinery had been delivered.

When the adjudication took place on November 5, 1959 the total amount, exclusive of interest, still unpaid under the new arrangement was $9,936.50. The trustee took possession of the machinery at the bankrupt's plant in Norwich. There followed the proceedings before the referee which led to the decision and order under review. P. R. has paid to the estate the sum of $7,000 representing the machinery which it sold under leave of the court. It urges that it is entitled to repayment of this sum upon the theory that it had title to both machines under the two conditional sales contracts which was good as against the trustee and that it was therefore entitled to the proceeds of the sale of the property.

In substance, the referee held:

1. That the residence of Amity was in Queens County, New York, since it was a New York corporation whose certificate of incorporation specified Queens County as its principal place of business.

2. That the arrangements between P. R. and Amity made in August 1959 resulted in a new agreement with relation to the property covered by the original conditional sales contracts.

3. That the new agreement was an addition to the original sales contracts "so as to include other * * * transactions between the same parties" under § 66-a of the New York Personal Property Law, McKinney's Consol.Laws, c. 41, requiring the making and filing of a new conditional sales contract.

4. That the failure to file such a new contract in Queens County, where Amity resided, as required by § 66-a of the New York Personal Property Law, rendered the vendors' reservation of title in the machinery void as against the trustee under § 65 thereof. The referee did not discuss the effect of the removal of the property to Connecticut with the permission of the vendors and the filing of the original 1957 and 1958 conditional sales contracts there.

The reclaimants contend that the referee erred in holding that the New York Personal Property Law governed and urge that Connecticut and not New York law should apply. They assert that by filing the original conditional sales contracts in Connecticut they fully complied with the requirements of Connecticut law and therefore their reservation of title to the property is good as against the trustee.

They further urge that in any event the referee was in error in holding that the arrangements with Amity made in August 1959 were an addition to the original conditional sales contracts so as to include other transactions between the parties which required the making and filing of a new contract under § 66-a of the New York Personal Property Law. Thus, say the reclaimants, even if the New York Personal Property Law did apply their reservation of title under the original conditional sales contracts must be held to be good.

The referee was quite correct in holding that the arrangements between P. R. and Amity in August 1959 constituted a new agreement with respect to the subject matter of the two previous conditional sales. Some of the outstanding notes payable at $200 per month on the purchase price of the rebeamer were then already in default and the time when the final payment for the rebeamer was to be made had already passed. These notes and the notes of $500 per month on the two boil-off machines were returned to the vendors and extinguished. The new notes in substantially lesser amounts extended the time for payment by more than two years in the case of the rebeamer and one year in the case of the boil-off machines. In effect P. R. attempted to reserve title to the machines for those extended periods when, in fact, under the contracts which had been filed title would have passed to the purchaser long before. The new notes covered both the rebeamer and the two boil-off machines. This was an entirely new conditional sales agreement with quite different terms and conditions from those of either of the two previously filed in Queens County and Norwich, Connecticut.

In this posture of the case it makes no difference in result whether New York law applies, as the referee held, or Connecticut law applies, as the reclaimants contend. In either event, the new agreement was required to be in writing and to be filed in order to protect the vendors' title against one in the position of the trustee. The new agreement was only partially reduced to writing and neither the text of the agreement nor any notice of it were filed anywhere.

Assuming New York law applies, the transaction is governed by §§ 65 and 66-a of the New York Personal Property Law.² At the very least this was an agreement coming within the purview of § 66-a. It is certainly an "addition" to the original conditional sales contracts so as to include "other purchases or transactions between the same parties." Thus, under § 66-a it was required that "a new contract must be made and filed."

This is quite...