In re United Thrift Stores, Inc., 15629.

• Decision Date: 06 July 1966
• Docket Number: No. 15629.,15629.
• Citation: 363 F.2d 11
• Parties: In the Matter of UNITED THRIFT STORES, INC., Debtor. REDISCO, INC. v. UNITED THRIFT STORES, INC., Debtor, and James E. Masterson, Trustee, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

363 F.2d 11 (1966)

In the Matter of UNITED THRIFT STORES, INC., Debtor REDISCO, INC. v. UNITED THRIFT STORES, INC., Debtor, and James E. Masterson, Trustee, Appellants.

No. 15629.

United States Court of Appeals Third Circuit.

Argued March 25, 1966.

Decided July 6, 1966.

Robert S. Solomon, Newark, N. J., (James E. Masterson, Newark, N. J., Pro Se, and Seymour J. Solomon, Newark, N. J., on the brief), for appellants.

Arthur S. Lesser, New York City (Hyman H. Bernstein, Jersey City, N. J., on the brief), for appellee.

Before KALODNER, Chief Judge, and McLAUGHLIN and HASTIE, Circuit Judges.

OPINION

KALODNER, Chief Judge.

Prior to its bankruptcy United Thrift Stores, Inc. purchased Kelvinator appliances from Redisco, Inc., financing subsidary of the American Motors Corporation which manufactured them.

Subsequent to the bankruptcy Redisco sought to reclaim from the bankrupt estate certain Kelvinator appliances or the proceeds of their sale. The Bankruptcy Referee denied the reclamation claim and the District Court reversed, 242 F.Supp. 714 (D.N.J.1965). This appeal by the bankrupt estate and its Trustee followed.

The District Court premised its disposition on its holding that "trust receipts" relating to the transactions between the bankrupt and Redisco constituted enforceable security agreements under the Uniform Commercial Code as adopted by New Jersey, N.J.S.A. 12A:1-101 et seq.

On this appeal, bankrupt contends that it purchased the appliances from Redisco on "open account" and that (1) the "trust receipts" did not constitute security agreements because "they do not show an intention to give Redisco a secured status or a security interest"; (2) "the instruments themselves and the acts and conduct of the parties negate an intent to create a security agreement"; and (3) no "value" was given to the bankrupt for its execution of the "trust receipts".

The following facts are undisputed:

On March 12, 1963, a financing statement was filed with the Secretary of State of New Jersey, pursuant to the provisions of the Uniform Commercial Code ("Code"), N.J.S.A. 12A:9-401.¹ The statement covered "inventory of Kelvinator appliances". It named United Thrift as debtor, and Redisco as the secured party, and stated that proceeds of collateral were also covered.

On March 22, 1963, the Secretary of State certified that he had searched his files under the Code and found four previously recorded secured parties listing United Thrift as debtor. Redisco then sent notices to these other parties stating that it "has or expects to acquire a purchase money security interest in inventory of Kelvinator electric and gas appliances * * * which it will from time to time deliver or cause to be delivered to United Thrift. * * *"

Between July 29, 1964 and September 24, 1964, four separate agreements were entered into between the Kelvinator Division of the American Motors Sales Corporation (a subsidiary of American Motors Corporation), United Thrift and Redisco. Each agreement contained three sections, as follows: (1) a bill of sale from the Kelvinator Division to Redisco for the articles listed by model and serial numbers; (2) a trust receipt from United Thrift to Redisco, covering the same articles and setting forth a release amount opposite each item; and (3) a signed, but incompleted, promissory note from United Thrift to Redisco, bearing the same identification number as the trust receipt.

In the section captioned "trust receipt", United Thrift acknowledged receipt of the listed appliances and further acknowledged that they were the property of Redisco and would be returned to Redisco "on demand". United Thrift further agreed in the trust receipt, "not to sell, loan, deliver, pledge, mortgage or otherwise dispose of said articles to any other person until after payments shown in Release Amount column below".

The trust receipts also provided that the total release amounts are the "Amounts of Promissory Note." One of them provided for full payment in 90 days; the remaining three provided for payment in installments at the end of 30, 60 and 90 days. Redisco received two partial payments on the trust receipt calling for payment in full in 90 days. It also received two of the three installment payments due on one of the trust receipts calling for payment in 30, 60 and 90 days. It received no payments on the two remaining trust receipts. United Thrift did not pay a single "release amount" at the time it disposed of the appliances nor did Redisco seek to enforce the requirement of payment of "release amount" at the time an appliance was sold.

An inspection of collateral was made by Redisco on October 27, 1964 at which time several units of collateral were found to be missing.

On October 30, 1964, United Thrift filed a petition for arrangement under Chapter XI of the Bankruptcy Act. Redisco was listed in United Thrift's schedules as an unsecured creditor in the amount of $42,753.79.

On November 13, 1964, Redisco filed its petition to reclaim certain Kelvinator appliances, or the proceeds thereof, which totaled $36,816.44.

On December 16, 1964 the Bankruptcy Referee adjudicated United Thrift a bankrupt, following its failure to proceed with a plan for arrangement, and appointed James F. Masterson, Esq. as Trustee.

The Referee subsequently denied the reclamation petition on his holding that United Thrift had purchased the appliances on open account and accordingly Redisco did not have a security interest under its trust receipts. He premised his holding on his determination that (1) the "trust receipt agreements were contradictory in that provisions for credit on a 30, 60 and/or 90 day basis was included therein"; (2) Redisco "made no effort to enforce the provisions of the agreement which set up a trust"; and (3) the making and acceptance of "payments on the 30, 60 and/or 90 day basis show that the parties both understood that the agreements provided for sales on open account".

In reversing the Bankruptcy Referee, the District Court held that (1) the trust receipts satisfied the requirements of N.J.S.A. 12A:9-201 which provides that "a security agreement is effective according to its terms between the parties * * * and against creditors"; (2) the "payment of release amounts and payment on 30-60-90 day terms", are not "contradictory methods of payment"; and (3) failure of Redisco to enforce "release payments" and to "police" the collateral did not evidence an intention to sell the appliances on open account.

We agree with the view of the District Court, and reject the contention of the bankrupt that the trust receipts were not valid security agreements under their terms and/or by reason of the conduct of the parties in their enforcement and lack of enforcement.

Nor do we agree, for reasons subsequently stated, with the bankrupt's contention, advanced for the first time on this appeal, that no "value" was given to the bankrupt for the execution of the trust receipts.

The trust receipt is specifically recognized by the Code as one type of agreement to create security interests. N.J. S.A. 12A:9-102(2).

N.J.S.A. 12A:1-201(3) defines an "agreement" as follows:

"`Agreement\' means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance * * *."

The "language" in the four...