In re Roosevelt Lanes, Inc.
| Decision Date | 08 October 1964 |
| Docket Number | No. 64-B-40.,64-B-40. |
| Citation | 234 F. Supp. 842 |
| Parties | In the Matter of ROOSEVELT LANES, INC., Debtor. |
| Court | U.S. District Court — Eastern District of New York |
Blumberg, Singer, Ross & Gordon, New York City, for petitioner, Frederick Newman, New York City, of counsel.
Bennett E. Aron, West Hempstead, N. Y., for respondent.
This is a petition to review the order of Referee Rudin, dated May 15, 1964, denying the petition of Brunswick Corporation (formerly The Brunswick Automatic Pinsetter Corporation) for an order of reclamation of 40 pinsetters sold by the petitioner (hereinafter referred to as Brunswick) to the debtor under a conditional sales contract, dated June 29, 1959. The debtor operates a 40 lane bowling establishment in Roosevelt, Nassau County, New York. The conditional sales contract was duly and timely filed in the office of the Clerk of Nassau County on July 1, 1959, New York Personal Property Law, McKinney's Consol.Laws c. 41, §§ 65, 66 and was duly and timely refiled. New York Personal Property Law, § 71. The Referee denied the petition upon the ground that a written agreement between the debtor and Brunswick, dated May 9, 1963, which modified the amount of certain installment payments, extended the term for the payment of the unpaid time balance and added an "extension charge" for the financing of the indebtedness over the extended period, rendered the conditional sales contract invalid as against the debtor-in-possession for failure of Brunswick to file the extension agreement; that this agreement "created an entirely new agreement"; that the changes effected thereby were substantial; that Section 66-a of the New York Personal Property Law required that the extension agreement be filed.
The cash price of the pinsetters was $8,100 each, or a total of $324,000 for 40 such pinsetters. The debtor made a down payment of $20,000 and desired to finance the unpaid balance of $304,000 over a period of eight years. Accordingly, there was added to the unpaid balance of $304,000 a finance charge of $79,040 for the financing over the eight year period, thus bringing the debtor's total obligation to the sum of $383,040. The conditional sales contract does not state separately the unpaid balance of principal ($304,000) and the precalculated finance charge. Rather it lumps principal and finance charge as follows:
Total purchase price ................................$403,040
Heretofore paid ...........................$ 4,000
Paid on contract .......................... 16,000 20,000
_________ ________
Deferred time balance .........................$383,040
This deferred time balance was to be paid as follows, beginning July 20, 1959:
On the basis of these monthly minimums, the final installment would have been paid in June 1967 and it would appear that the finance charge was computed accordingly. For the contract provides "after full payment of the purchase price and the amounts due hereunder the Seller shall give the Buyer a finance charge credit for payments in excess of the monthly minimums at the rate of 6% per annum." It will be noted that the finance charge under the original contract amounts to 26% of the unpaid balance of principal of $304,000. In the trade this is known as an "add-on." The "add-on" per year (over an eight year period) is 3.25 applied to the original amount of principal. The actuarial rate of return on this amount based on the minimum monthly installments payable over an eight year period is slightly less than 6% per annum. Financial Rate Translater and Guide to Legal Installment Sales Rates, prepared by Financial Publishing Company, 82 Brookline Avenue, Boston 15, Massachusetts.
As of May 9, 1963, the debtor was in default. The unpaid "deferred time balance," exclusive of unearned finance charge, was $254,362.52. There was also due the further sum of $7,920 as interest, at the rate of 6% per annum, on late payments of installments. In response to the debtor's pleas for more time, a written extension agreement was executed by the conditional vendor and the conditional vendee, dated May 9, 1963. When the extension agreement was executed, no new note was executed nor was the original conditional sales contract or the original conditional sales promissory note, each dated June 29, 1959, surrendered. The unpaid balance was recalculated as follows:
Unpaid balance, excluding unearned finance charge .......$254,362.52
Interest due on late payments, at 6% .................... 7,920.00
Finance charge on $262,282.52 for seven years ........... 73,439.11
___________
$335,721.63
The provision of the original contract as to installment payments was modified. Whereas the original contract and promissory note required monthly minimum payments of $5,000 for the months of October through May of each year and of $2,000 for the months of June through September of each year (a total annual minimum of $48,000), the extension agreement required only eight monthly minimum installments of $5,995 each year or an annual total of $47,960, except that the final monthly minimum was fixed at $5,996.63, so that, over a period of seven years from March 15, 1963 (the due date of the first installment under the extension agreement), the total sum of $335,721.63 would have been paid. Although the original contract would have been paid in full according to its terms by June 1967, the extension agreement extended the date of final payment to March 15, 1970. In addition, the finance charge under the extension agreement was increased to an "add-on" of 28% for the seven year period, the equivalent of simple interest at the rate of 7.3% per year, whereas under the original contract the rate of interest was slightly less than 6% per annum.
The extension agreement refers to the conditional sales contract and promissory note, each dated June 29, 1959, and provides:
The conditional sales contract provides:
The debtor failed to pay in full the first installment due under the extension agreement on March 15, 1963, and failed to pay any part of the subsequent installments due April 15, May 15, October 15, November 15, December 15, 1963 and January 15, 1964. Rather, on January 14, 1964, it filed a petition for an arrangement under Chapter XI, Section 322 of the Bankruptcy Act, 11 U.S.C. § 722. The matter was referred to Honorable William J. Rudin, Referee in Bankruptcy and an order of this court was made and entered authorizing the debtor to continue the operation of its business as debtor-in-possession. Thereupon, Brunswick made a demand upon the debtor for the surrender of the 40 pinsetters and, upon the debtor's refusal to comply, filed its petition for an order directing the debtor to surrender the same to Brunswick.
In its answer to the petition the debtor admitted the basic facts...
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... ... Re Savage Mills, Inc., 170 F.Supp. 559 (E. D.N.Y.1959); Re Roosevelt Lanes, Inc., 234 F.Supp. 842 (E.D.N.Y.1964), aff'd ... ...
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